Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see MS INTERNATIONAL plc (LON:MSI) is about to trade ex-dividend in the next 4 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Meaning, you will need to purchase MS INTERNATIONAL's shares before the 15th of July to receive the dividend, which will be paid on the 10th of August.

The company's next dividend payment will be UK£0.065 per share, on the back of last year when the company paid a total of UK£0.083 to shareholders. Looking at the last 12 months of distributions, MS INTERNATIONAL has a trailing yield of approximately 3.8% on its current stock price of £2.17. 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 check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for MS INTERNATIONAL

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. MS INTERNATIONAL paid out 115% 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. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 6.4% of its free cash flow as dividends last year, which is conservatively low.

It's good to see that while MS INTERNATIONAL'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.

Click here to see how much of its profit MS INTERNATIONAL paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. MS INTERNATIONAL's earnings per share have fallen at approximately 5.6% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. MS INTERNATIONAL has delivered 2.4% 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. MS INTERNATIONAL is already paying out 115% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.

Final Takeaway

Should investors buy MS INTERNATIONAL for the upcoming dividend? It's not a great combination to see a company with earnings in decline and paying out 115% 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 the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

With that in mind though, if the poor dividend characteristics of MS INTERNATIONAL don't faze you, it's worth being mindful of the risks involved with this business. To that end, you should learn about the 4 warning signs we've spotted with MS INTERNATIONAL (including 1 which is a bit unpleasant).

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

This article by Simply Wall St is general in nature. 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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