Don't Buy MillerKnoll, Inc. (NASDAQ:MLKN) For Its Next Dividend Without Doing These Checks

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that MillerKnoll, Inc. (NASDAQ:MLKN) is about to go ex-dividend in just four days. The ex-dividend date is usually set to be one business day before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase MillerKnoll's shares on or after the 28th of November, you won't be eligible to receive the dividend, when it is paid on the 15th of January.

The company's upcoming dividend is US$0.1875 a share, following on from the last 12 months, when the company distributed a total of US$0.75 per share to shareholders. Last year's total dividend payments show that MillerKnoll has a trailing yield of 4.9% on the current share price of US$15.21. If you buy this business for its dividend, you should have an idea of whether MillerKnoll's dividend is reliable and sustainable. As a result, readers should always check whether MillerKnoll has been able to grow its dividends, or if the dividend might be cut.

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Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. MillerKnoll reported a loss last year, so it's not great to see that it has continued paying a dividend. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If MillerKnoll didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. It paid out more than half (63%) of its free cash flow in the past year, which is within an average range for most companies.

See our latest analysis for MillerKnoll

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. MillerKnoll was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, MillerKnoll has lifted its dividend by approximately 3.0% a year on average.

We update our analysis on MillerKnoll every 24 hours, so you can always get the latest insights on its financial health, here.

To Sum It Up

Is MillerKnoll an attractive dividend stock, or better left on the shelf? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. Bottom line: MillerKnoll has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with MillerKnoll. For instance, we've identified 2 warning signs for MillerKnoll (1 doesn't sit too well with us) you should be aware of.

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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.