Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Mattioli Woods plc (LON:MTW) is about to trade ex-dividend in the next three days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. 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. Accordingly, Mattioli Woods investors that purchase the stock on or after the 21st of September will not receive the dividend, which will be paid on the 3rd of November.
The company's next dividend payment will be UK£0.18 per share, on the back of last year when the company paid a total of UK£0.27 to shareholders. Last year's total dividend payments show that Mattioli Woods has a trailing yield of 4.3% on the current share price of £6.2. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Mattioli Woods can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Mattioli Woods
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Mattioli Woods paid out 179% 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.
When a company pays out a dividend that is not well covered by profits, the dividend is generally seen as more vulnerable to being cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Mattioli Woods's earnings per share have fallen at approximately 14% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Mattioli Woods has lifted its dividend by approximately 16% a year on average. 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. Mattioli Woods is already paying out 179% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.