It Might Not Be A Great Idea To Buy Midwich Group plc (LON:MIDW) For Its Next Dividend
Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Midwich Group plc (LON:MIDW) is about to go ex-dividend in just 3 days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Therefore, if you purchase Midwich Group's shares on or after the 1st of October, you won't be eligible to receive the dividend, when it is paid on the 6th of November.
The company's next dividend payment will be UK£0.019 per share, and in the last 12 months, the company paid a total of UK£0.052 per share. Calculating the last year's worth of payments shows that Midwich Group has a trailing yield of 3.3% on the current share price of UK£1.614. If you buy this business for its dividend, you should have an idea of whether Midwich Group's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
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. Midwich Group lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Midwich Group didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Luckily it paid out just 24% of its free cash flow last year.
Check out our latest analysis for Midwich Group
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Midwich Group reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Midwich Group has delivered an average of 5.8% per year annual increase in its dividend, based on the past 10 years of dividend payments.
We update our analysis on Midwich Group every 24 hours, so you can always get the latest insights on its financial health, here.
The Bottom Line
Has Midwich Group got what it takes to maintain its dividend payments? It's hard to get used to Midwich Group paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.
With that being said, if you're still considering Midwich Group as an investment, you'll find it beneficial to know what risks this stock is facing. Our analysis shows 2 warning signs for Midwich Group and you should be aware of these before buying any shares.
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.