Dividend Investors: Don't Be Too Quick To Buy Mühlbauer Holding AG (ETR:MUB) For Its Upcoming Dividend
The company's next dividend payment will be €1.50 per share, and in the last 12 months, the company paid a total of €1.50 per share. Looking at the last 12 months of distributions, Mühlbauer Holding has a trailing yield of approximately 3.3% on its current stock price of €45.40. 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! We need to see whether the dividend is covered by earnings and if it's growing.
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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Mühlbauer Holding paid out 184% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. A useful secondary check can be to evaluate whether Mühlbauer Holding generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 49% of the free cash flow it generated, which is a comfortable payout ratio.
It's good to see that while Mühlbauer Holding's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.
Check out our latest analysis for Mühlbauer Holding
Click here to see how much of its profit Mühlbauer Holding paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're discomforted by Mühlbauer Holding's 24% 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. Mühlbauer Holding has delivered 4.1% dividend growth per year on average over the past 10 years. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Mühlbauer Holding is already paying out 184% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.
Final Takeaway
Is Mühlbauer Holding an attractive dividend stock, or better left on the shelf? It's not a great combination to see a company with earnings in decline and paying out 184% of its profits, which could imply the dividend may be at risk of being cut in the future. However, the cash payout ratio was much lower - good news from a dividend perspective - which makes us wonder why there is such a mis-match between income and cashflow. It's not that we think Mühlbauer Holding is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
Although, if you're still interested in Mühlbauer Holding and want to know more, you'll find it very useful to know what risks this stock faces. For example, we've found 3 warning signs for Mühlbauer Holding (1 is potentially serious!) that deserve your attention before investing in the shares.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.
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