February 29, 2024

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We Wouldn’t Be Too Quick To Buy Moneysupermarket.com Group PLC (LON:MONY) Before It Goes Ex-Dividend

Moneysupermarket.com Group PLC (LON:MONY) is about to trade ex-dividend in the next two 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. Meaning, you will need to purchase Moneysupermarket.com Group’s shares before the 31st of March to receive the dividend, which will be paid on the 12th of May.

The company’s upcoming dividend is UK£0.086 a share, following on from the last 12 months, when the company distributed a total of UK£0.12 per share to shareholders. Calculating the last year’s worth of payments shows that Moneysupermarket.com Group has a trailing yield of 5.9% on the current share price of £1.971. 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 Moneysupermarket.com Group can afford its dividend, and if the dividend could grow.

View our latest analysis for Moneysupermarket.com Group

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. Moneysupermarket.com Group distributed an unsustainably high 119% of its profit as dividends to shareholders last year. Without extenuating circumstances, we’d consider the dividend at risk of a cut. A useful secondary check can be to evaluate whether Moneysupermarket.com Group generated enough free cash flow to afford its dividend. Moneysupermarket.com Group paid out more free cash flow than it generated – 112%, to be precise – last year, which we think is concerningly high. It’s hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we’d wonder how the company justifies this payout level.

As Moneysupermarket.com Group’s dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.

Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.

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Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we’re discomforted by Moneysupermarket.com Group’s 6.1% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Moneysupermarket.com Group has delivered 10.0% dividend growth per year on average over the past 10 years. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Moneysupermarket.com Group is already paying out 119% of its profits, and with shrinking earnings we think it’s unlikely that this dividend will grow quickly in the future.

To Sum It Up

From a dividend perspective, should investors buy or avoid Moneysupermarket.com Group? It’s looking like an unattractive opportunity, with its earnings per share declining, while, paying out an uncomfortably high percentage of both its profits (119%) and cash flow as dividends. This is a starkly negative combination that often suggests a dividend cut could be in the company’s near future. 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 Moneysupermarket.com Group as an investment, you’ll find it beneficial to know what risks this stock is facing. Case in point: We’ve spotted 1 warning sign for Moneysupermarket.com Group you should be aware of.

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.