Be Sure To Check Out Marathon Petroleum Corporation (NYSE:MPC) Before It Goes Ex-Dividend

Readers hoping to buy Marathon Petroleum Corporation (NYSE:MPC) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, Marathon Petroleum investors that purchase the stock on or after the 21st of August will not receive the dividend, which will be paid on the 10th of September.

The company's next dividend payment will be US$0.825 per share. Last year, in total, the company distributed US$3.30 to shareholders. Calculating the last year's worth of payments shows that Marathon Petroleum has a trailing yield of 1.8% on the current share price of US$180.75. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Marathon Petroleum has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Marathon Petroleum

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. Marathon Petroleum has a low and conservative payout ratio of just 17% of its income after tax. A useful secondary check can be to evaluate whether Marathon Petroleum generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 14% of its cash flow last year.

It's positive to see that Marathon Petroleum's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Marathon Petroleum has grown its earnings rapidly, up 39% a year for the past five years. Marathon Petroleum earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky "beep-beep". We also like that it is reinvesting most of its profits in its business.'

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Marathon Petroleum has delivered 15% dividend growth per year on average over the past 10 years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

Is Marathon Petroleum an attractive dividend stock, or better left on the shelf? Marathon Petroleum has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Overall we think this is an attractive combination and worthy of further research.

While it's tempting to invest in Marathon Petroleum for the dividends alone, you should always be mindful of the risks involved. We've identified 3 warning signs with Marathon Petroleum (at least 1 which is potentially serious), and understanding these should be part of your investment process.

If you're in the market for strong dividend payers, we recommend checking 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.