Read This Before Considering MIND C.T.I. Ltd (NASDAQ:MNDO) For Its Upcoming US$0.26 Dividend

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 MIND C.T.I. Ltd (NASDAQ:MNDO) is about to go ex-dividend in just 3 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Thus, you can purchase MIND C.T.I's shares before the 23rd of March in order to receive the dividend, which the company will pay on the 6th of April.

The company's upcoming dividend is US$0.26 a share, following on from the last 12 months, when the company distributed a total of US$0.26 per share to shareholders. Looking at the last 12 months of distributions, MIND C.T.I has a trailing yield of approximately 8.5% on its current stock price of $3.06. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for MIND C.T.I

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Its dividend payout ratio is 87% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be concerned if earnings began to decline. A useful secondary check can be to evaluate whether MIND C.T.I generated enough free cash flow to afford its dividend. It paid out 76% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

It's positive to see that MIND C.T.I'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 how much of its profit MIND C.T.I paid out over the last 12 months.

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. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see MIND C.T.I earnings per share are up 6.4% per annum over the last five years. Decent historical earnings per share growth suggests MIND C.T.I has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, MIND C.T.I has lifted its dividend by approximately 0.8% a year on average.

To Sum It Up

Is MIND C.T.I an attractive dividend stock, or better left on the shelf? Earnings per share have been growing modestly and MIND C.T.I paid out a bit over half of its earnings and free cash flow last year. Overall, it's hard to get excited about MIND C.T.I from a dividend perspective.

If you're not too concerned about MIND C.T.I's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. To help with this, we've discovered 1 warning sign for MIND C.T.I that you should be aware of before investing in their shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.