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Readers hoping to buy MillerKnoll, Inc. (NASDAQ:MLKN) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is one business day before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves a full business day. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, MillerKnoll investors that purchase the stock on or after the 30th of May will not receive the dividend, which will be paid on the 15th of July.
The company's upcoming dividend is US$0.1875 a share, following on from the last 12 months, when the company distributed a total of US$0.75 per share to shareholders. Based on the last year's worth of payments, MillerKnoll stock has a trailing yield of around 4.6% on the current share price of US$16.29. If you buy this business for its dividend, you should have an idea of whether MillerKnoll's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. MillerKnoll distributed an unsustainably high 174% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. A useful secondary check can be to evaluate whether MillerKnoll generated enough free cash flow to afford its dividend. Fortunately, it paid out only 41% of its free cash flow in the past year.
It's good to see that while MillerKnoll'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. Very few companies are able to sustainably pay dividends larger than their reported earnings.
See our latest analysis for MillerKnoll
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. If earnings fall far enough, the company could be forced to cut its dividend. MillerKnoll's earnings per share have plummeted approximately 30% a year over the previous five years.