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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Public Joint Stock Company Magnit (MCX:MGNT) is about to trade ex-dividend in the next 3 days. Investors can purchase shares before the 9th of January in order to be eligible for this dividend, which will be paid on the 1st of January.
Magnit's next dividend payment will be ₽147 per share. Last year, in total, the company distributed ₽334 to shareholders. Looking at the last 12 months of distributions, Magnit has a trailing yield of approximately 9.1% on its current stock price of RUB3445.5. 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 Magnit can afford its dividend, and if the dividend could grow.
View our latest analysis for Magnit
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. Magnit distributed an unsustainably high 129% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. A useful secondary check can be to evaluate whether Magnit generated enough free cash flow to afford its dividend. Over the last year, it paid out dividends equivalent to 891% of what it generated in free cash flow, a disturbingly high percentage. Our definition of free cash flow excludes cash generated from asset sales, so since Magnit is paying out such a high percentage of its cash flow, it might be worth seeing if it sold assets or had similar events that might have led to such a high dividend payment.
Cash is slightly more important than profit from a dividend perspective, but given Magnit's payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Readers will understand then, why we're concerned to see Magnit's earnings per share have dropped 9.4% a year over the past 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. Since the start of our data, ten years ago, Magnit has lifted its dividend by approximately 43% a year on average. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Magnit is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.