Mondi plc (LON:MNDI) stock is about to trade ex-dividend in 3 days time. If you purchase the stock on or after the 2nd of April, you won’t be eligible to receive this dividend, when it is paid on the 14th of May.
Mondi’s next dividend payment will be UK£0.56 per share. Last year, in total, the company distributed UK£0.83 to shareholders. Based on the last year’s worth of payments, Mondi stock has a trailing yield of around 5.6% on the current share price of £13.27. If you buy this business for its dividend, you should have an idea of whether Mondi’s dividend is reliable and sustainable. That’s why we should always check whether the dividend payments appear sustainable, and if the company is growing.
See our latest analysis for Mondi
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Mondi paid out a comfortable 50% of its profit last year. A useful secondary check can be to evaluate whether Mondi generated enough free cash flow to afford its dividend. It paid out more than half (69%) of its free cash flow in the past year, which is within an average range for most companies.
It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. 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 Mondi’s earnings per share have risen 11% per annum over the last five years. Mondi is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. Mondi has delivered 32% dividend growth per year on average over the past ten years. It’s exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
The Bottom Line
Is Mondi worth buying for its dividend? From a dividend perspective, we’re encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. Mondi looks solid on this analysis overall, and we’d definitely consider investigating it more closely.
In light of that, while Mondi has an appealing dividend, it’s worth knowing the risks involved with this stock. For example – Mondi has 3 warning signs we think you should be aware of.
If you’re in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at [email protected] This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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