Monro, Inc.'s (NASDAQ:MNRO) investors are due to receive a payment of $0.28 per share on 10th of September. This means the annual payment is 4.1% of the current stock price, which is above the average for the industry.
Check out our latest analysis for Monro
Monro Is Paying Out More Than It Is Earning
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, Monro's profits didn't cover the dividend, but the company was generating enough cash instead. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
Over the next year, EPS is forecast to expand by 8.0%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 101% over the next year.
Monro Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from an annual total of $0.44 in 2014 to the most recent total annual payment of $1.12. This works out to be a compound annual growth rate (CAGR) of approximately 9.8% a year over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.
Dividend Growth Potential Is Shaky
The company's investors will be pleased to have been receiving dividend income for some time. However, things aren't all that rosy. Over the past five years, it looks as though Monro's EPS has declined at around 15% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. 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 Monro's Dividend
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. 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 be a touch cautious of relying on this stock primarily for the dividend income.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Monro that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.
About NasdaqGS:MNRO
Monro
Engages in the operation of retail tire and automotive repair stores in the United States.
Average dividend payer and fair value.
