Matthews International (NASDAQ:MATW) Is Paying Out A Larger Dividend Than Last Year

Matthews International Corporation (NASDAQ:MATW) has announced that it will be increasing its dividend from last year's comparable payment on the 12th of December to $0.23. This will take the annual payment to 2.9% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Matthews International

Matthews International Doesn't Earn Enough To Cover Its Payments

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Matthews International is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.

Earnings per share is forecast to rise by 116.8% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 171%, which probably can't continue without putting some pressure on the balance sheet.

Matthews International Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2012, the annual payment back then was $0.36, compared to the most recent full-year payment of $0.92. This means that it has been growing its distributions at 9.8% per annum over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

The Dividend Has Limited Growth Potential

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Unfortunately things aren't as good as they seem. Over the past five years, it looks as though Matthews International's EPS has declined at around 48% a year. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

Our Thoughts On Matthews International's Dividend

Overall, we always like to see the dividend being raised, but we don't think Matthews International will make a great income stock. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 2 warning signs for Matthews International (of which 1 is concerning!) you should know about. Is Matthews International not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.