Three Days Left Until ME Group International plc (LON:MEGP) Trades Ex-Dividend

It looks like ME Group International plc (LON:MEGP) 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 important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase ME Group International's shares on or after the 5th of November, you won't be eligible to receive the dividend, when it is paid on the 27th of November.

The company's next dividend payment will be UK£0.036 per share, on the back of last year when the company paid a total of UK£0.086 to shareholders. Looking at the last 12 months of distributions, ME Group International has a trailing yield of approximately 7.7% on its current stock price of UK£1.118. 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 ME Group International has been able to grow its dividends, or if the dividend might be cut.

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Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. ME Group International is paying out an acceptable 57% of its profit, a common payout level among most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the past year it paid out 185% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

ME Group International paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to ME Group International's ability to maintain its dividend.

Check out our latest analysis for ME Group International

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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see ME Group International's earnings per share have risen 16% per annum over the last five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

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, ME Group International has increased its dividend at approximately 5.3% a year on average. Earnings per share have been growing much quicker than dividends, potentially because ME Group International is keeping back more of its profits to grow the business.

The Bottom Line

Has ME Group International got what it takes to maintain its dividend payments? It's good to see that earnings per share are growing and that the company's payout ratio is within a normal range for most businesses. However we're somewhat concerned that it paid out 185% of its cashflow, which is uncomfortably high. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

If you want to look further into ME Group International, it's worth knowing the risks this business faces. Our analysis shows 2 warning signs for ME Group International that we strongly recommend you have a look at before investing in the company.

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