Dividend Investors: Don't Be Too Quick To Buy Michael Hill International Limited (ASX:MHJ) For Its Upcoming Dividend
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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 Michael Hill International Limited (ASX:MHJ) is about to go ex-dividend in just 4 days. The ex-dividend date is one business day 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase Michael Hill International's shares before the 7th of March in order to be eligible for the dividend, which will be paid on the 22nd of March.
The company's upcoming dividend is AU$0.0175 a share, following on from the last 12 months, when the company distributed a total of AU$0.035 per share to shareholders. Looking at the last 12 months of distributions, Michael Hill International has a trailing yield of approximately 4.8% on its current stock price of AU$0.725. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Michael Hill International can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Michael Hill International
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Michael Hill International distributed an unsustainably high 154% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Michael Hill International paid out more free cash flow than it generated - 145%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
Cash is slightly more important than profit from a dividend perspective, but given Michael Hill International's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
