Is Marine Products Corporation (NYSE:MPX) a good dividend stock? How would you know? A dividend paying company with growing earnings can be rewarding in the long term. If you are hoping to live on the income from dividends, it’s important to be a lot more stringent with your investments than the average punter.
With Marine Products yielding 4.2% and having paid a dividend for over 10 years, many investors likely find the company quite interesting. It would not be a surprise to discover that many investors buy it for the dividends. It also bought back stock during the year, equivalent to approximately 1.6% of the company’s market capitalisation at the time. When buying stocks for their dividends, you should always run through the checks below, to see if the dividend looks sustainable.Explore this interactive chart for our latest analysis on Marine Products!
Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. So we need to be form a view on if a company’s dividend is sustainable, relative to its net profit after tax. Looking at the data, we can see that 51% of Marine Products’s profits were paid out as dividends in the last 12 months. A payout ratio above 50% generally implies a business is reaching maturity, although it is still possible to reinvest in the business or increase the dividend over time.
In addition to comparing dividends against profits, we should inspect whether the company generated enough cash to pay its dividend. The company paid out 84% of its free cash flow as dividends last year, which is adequate, but reduces the wriggle room in the event of a downturn.
Remember, you can always get a snapshot of Marine Products’s latest financial position, by checking our visualisation of its financial health.
From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. Marine Products has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. During this period the dividend has been stable, which could imply the business could have relatively consistent earnings power. During the past ten-year period, the first annual payment was US$0.04 in 2009, compared to US$0.58 last year. This works out to be a compound annual growth rate (CAGR) of approximately 31% a year over that time.
Dividend Growth Potential
While dividend payments have been relatively stable, it would also be nice if earnings per share (EPS) were growing, as this is essential to maintaining the dividend’s purchasing power over the long term. It’s good to see Marine Products has been growing its earnings per share at 32% a year over the past 5 years. Earnings per share are sharply up, but we wonder if paying out more than half its earnings (leaving less for reinvestment) is an implicit signal that Marine Products’s growth will be slower in the future.
When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. Marine Products’s is paying out more than half its income as dividends, but at least the dividend is covered both by reported earnings and cashflow. Next, growing earnings per share and steady dividend payments is a great combination. Overall we think Marine Products is an interesting dividend stock, although it could be better.
Now, if you want to look closer, it would be worth checking out our free research on Marine Products management tenure, salary, and performance.
Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.