Yahoo Finance Here's Why We're Wary Of Buying Magellan Aerospace's (TSE:MAL) For Its Upcoming Dividend
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Magellan Aerospace Corporation (TSE:MAL) is about to trade ex-dividend in the next 3 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. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase Magellan Aerospace's shares on or after the 15th of September, you won't be eligible to receive the dividend, when it is paid on the 29th of September.
The company's next dividend payment will be CA$0.10 per share, on the back of last year when the company paid a total of CA$0.42 to shareholders. Based on the last year's worth of payments, Magellan Aerospace stock has a trailing yield of around 4.0% on the current share price of CA$10.52. 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.
View our latest analysis for Magellan Aerospace
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Magellan Aerospace paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Fortunately, it paid out only 47% of its free cash flow in the past year.
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. Magellan Aerospace 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. Since the start of our data, eight years ago, Magellan Aerospace has lifted its dividend by approximately 17% a year on average.
We update our analysis on Magellan Aerospace every 24 hours, so you can always get the latest insights on its financial health, here.
Final Takeaway
Is Magellan Aerospace an attractive dividend stock, or better left on the shelf? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Magellan Aerospace.
With that in mind though, if the poor dividend characteristics of Magellan Aerospace don't faze you, it's worth being mindful of the risks involved with this business. Our analysis shows 1 warning sign for Magellan Aerospace and you should be aware of this before buying any shares.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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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