Here's Why We're Wary Of Buying Mahube Infrastructure's (JSE:MHB) For Its Upcoming Dividend

It looks like Mahube Infrastructure Limited (JSE:MHB) is about to go ex-dividend in the next three days. Typically, the ex-dividend date is two business days 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 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. Therefore, if you purchase Mahube Infrastructure's shares on or after the 23rd of July, you won't be eligible to receive the dividend, when it is paid on the 28th of July.

The company's next dividend payment will be R00.15 per share, on the back of last year when the company paid a total of R0.30 to shareholders. Based on the last year's worth of payments, Mahube Infrastructure has a trailing yield of 8.3% on the current stock price of R03.60. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Mahube Infrastructure paid out more than half (57%) of its earnings last year, which is a regular payout ratio for most companies.

Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.

Check out our latest analysis for Mahube Infrastructure

Click here to see how much of its profit Mahube Infrastructure paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. 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 not ideal to see Mahube Infrastructure's earnings per share have been shrinking at 3.1% a year over the previous five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Mahube Infrastructure's dividend payments per share have declined at 8.9% per year on average over the past eight years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

The Bottom Line

Should investors buy Mahube Infrastructure for the upcoming dividend? Earnings per share have been declining and the company is paying out more than half its profits to shareholders; not an enticing combination. Mahube Infrastructure doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

With that in mind though, if the poor dividend characteristics of Mahube Infrastructure don't faze you, it's worth being mindful of the risks involved with this business. To that end, you should learn about the 5 warning signs we've spotted with Mahube Infrastructure (including 2 which shouldn't be ignored).

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.