Be Sure To Check Out Medallion Financial Corp. (NASDAQ:MFIN) Before It Goes Ex-Dividend

Medallion Financial Corp. (NASDAQ:MFIN) stock is about to trade ex-dividend in 3 days. The ex-dividend date occurs one day before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least one business day to settle. Accordingly, Medallion Financial investors that purchase the stock on or after the 15th of May will not receive the dividend, which will be paid on the 30th of May.

The company's next dividend payment will be US$0.12 per share, on the back of last year when the company paid a total of US$0.44 to shareholders. Based on the last year's worth of payments, Medallion Financial has a trailing yield of 5.2% on the current stock price of US$9.17. If you buy this business for its dividend, you should have an idea of whether Medallion Financial's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

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. Medallion Financial is paying out just 25% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events.

When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.

Check out our latest analysis for Medallion Financial

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

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Medallion Financial's earnings have been skyrocketing, up 38% per annum for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Medallion Financial has seen its dividend decline 6.7% per annum on average over the past 10 years, which is not great to see. Medallion Financial is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

Final Takeaway

From a dividend perspective, should investors buy or avoid Medallion Financial? Companies like Medallion Financial that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. We think this is a pretty attractive combination, and would be interested in investigating Medallion Financial more closely.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For instance, we've identified 3 warning signs for Medallion Financial (1 is a bit unpleasant) you should be aware of.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.