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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 Maple Leaf Foods Inc. (TSE:MFI) is about to trade ex-dividend in the next three days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Maple Leaf Foods' shares before the 7th of March in order to be eligible for the dividend, which will be paid on the 31st of March.
The company's next dividend payment will be CA$0.24 per share. Last year, in total, the company distributed CA$0.96 to shareholders. Looking at the last 12 months of distributions, Maple Leaf Foods has a trailing yield of approximately 3.8% on its current stock price of CA$25.46. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Check out our latest analysis for Maple Leaf Foods
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Maple Leaf Foods distributed an unsustainably high 112% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. 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 24% of its free cash flow as dividends last year, which is conservatively low.
It's good to see that while Maple Leaf Foods's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Maple Leaf Foods, with earnings per share up 5.3% on average over the last five years.