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The board of Mortgage Advice Bureau (Holdings) plc (LON:MAB1) has announced that it will pay a dividend of £0.147 per share on the 31st of May. Including this payment, the dividend yield on the stock will be 4.1%, which is a modest boost for shareholders' returns.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Mortgage Advice Bureau (Holdings)'s stock price has increased by 30% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
Check out our latest analysis for Mortgage Advice Bureau (Holdings)
Mortgage Advice Bureau (Holdings)'s Payment Has Solid Earnings Coverage
If it is predictable over a long period, even low dividend yields can be attractive. Prior to this announcement, the company was paying out 129% of what it was earning and 78% of cash flows. While the cash payout ratio isn't necessarily a cause for concern, the company is probably focusing more on returning cash to shareholders than growing the business.
Looking forward, earnings per share is forecast to rise by 95.0% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 73% which brings it into quite a comfortable range.
Mortgage Advice Bureau (Holdings)'s Dividend Has Lacked Consistency
Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. The annual payment during the last 8 years was £0.02 in 2015, and the most recent fiscal year payment was £0.281. This implies that the company grew its distributions at a yearly rate of about 39% over that duration. Mortgage Advice Bureau (Holdings) has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
Dividend Growth May Be Hard To Achieve
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Mortgage Advice Bureau (Holdings) has seen earnings per share falling at 2.0% per year over the last five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.