Be Sure To Check Out Momentum Group Limited (JSE:MTM) Before It Goes Ex-Dividend

Momentum Group Limited (JSE:MTM) is about to trade ex-dividend in the next four days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Meaning, you will need to purchase Momentum Group's shares before the 8th of October to receive the dividend, which will be paid on the 13th of October.

The company's next dividend payment will be R00.90 per share, and in the last 12 months, the company paid a total of R1.80 per share. Based on the last year's worth of payments, Momentum Group has a trailing yield of 5.5% on the current stock price of R032.50. 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! So we need to investigate whether Momentum Group can afford its dividend, and if the dividend could grow.

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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. That's why it's good to see Momentum Group paying out a modest 39% of its earnings.

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 Momentum Group

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Momentum Group has grown its earnings rapidly, up 104% a year for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Momentum Group has lifted its dividend by approximately 1.5% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Momentum Group is keeping back more of its profits to grow the business.

To Sum It Up

Should investors buy Momentum Group for the upcoming dividend? Companies like Momentum Group that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. In summary, Momentum Group appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.

So while Momentum Group looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. In terms of investment risks, we've identified 1 warning sign with Momentum Group and understanding them should be part of your investment process.

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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.