Dividend Investors: Don't Be Too Quick To Buy Metrofile Holdings Limited (JSE:MFL) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Metrofile Holdings Limited (JSE:MFL) is about to trade ex-dividend in the next four 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase Metrofile Holdings' shares on or after the 3rd of April will not receive the dividend, which will be paid on the 8th of April.

The company's next dividend payment will be R00.07 per share, on the back of last year when the company paid a total of R0.14 to shareholders. Looking at the last 12 months of distributions, Metrofile Holdings has a trailing yield of approximately 5.3% on its current stock price of R02.66. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Metrofile Holdings has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Metrofile Holdings

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. Metrofile Holdings is paying out an acceptable 53% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Metrofile Holdings generated enough free cash flow to afford its dividend. Over the last year it paid out 59% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Metrofile Holdings'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 Metrofile Holdings paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about Metrofile Holdings's flat earnings 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.

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, Metrofile Holdings has lifted its dividend by approximately 0.7% a year on average.

Final Takeaway

Is Metrofile Holdings an attractive dividend stock, or better left on the shelf? While earnings per share are flat, at least Metrofile Holdings has not committed itself to an unsustainable dividend, with its earnings and cashflow payout ratios within reasonable bounds. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

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 Metrofile Holdings. In terms of investment risks, we've identified 4 warning signs with Metrofile Holdings and understanding them should be part of your investment process.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are 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.