Why It Might Not Make Sense To Buy MIND C.T.I. Ltd (NASDAQ:MNDO) For Its Upcoming Dividend

MIND C.T.I. Ltd (NASDAQ:MNDO) is about to trade ex-dividend in the next 2 days. You will need to purchase shares before the 17th of March to receive the dividend, which will be paid on the 8th of April.

MIND C.T.I's next dividend payment will be US$0.26 per share. Last year, in total, the company distributed US$0.26 to shareholders. Last year's total dividend payments show that MIND C.T.I has a trailing yield of 8.3% on the current share price of $3.13. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for MIND C.T.I

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. MIND C.T.I paid out 96% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. A useful secondary check can be to evaluate whether MIND C.T.I generated enough free cash flow to afford its dividend. Dividends consumed 74% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's good to see that while MIND C.T.I's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if this were to happen repeatedly, we'd be concerned about whether the dividend is sustainable in a downturn.

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?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. It's not encouraging to see that MIND C.T.I's earnings are effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, MIND C.T.I has increased its dividend at approximately 2.7% a year on average.

Final Takeaway

Is MIND C.T.I an attractive dividend stock, or better left on the shelf? Flat earnings per share and a high payout ratio are not what we like to see, although at least it paid out a lower percentage of its free cash flow. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with MIND C.T.I. Our analysis shows 2 warning signs for MIND C.T.I and you should be aware of them before buying any shares.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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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. 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.
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