Do These 3 Checks Before Buying MyState Limited (ASX:MYS) For Its Upcoming Dividend

Simply Wall St

MyState Limited (ASX:MYS) stock is about to trade ex-dividend in 4 days time. Investors can purchase shares before the 28th of February in order to be eligible for this dividend, which will be paid on the 15th of April.

MyState's upcoming dividend is AU$0.14 a share, following on from the last 12 months, when the company distributed a total of AU$0.29 per share to shareholders. Looking at the last 12 months of distributions, MyState has a trailing yield of approximately 4.9% on its current stock price of A$5.84. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for MyState

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. It paid out 86% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in earnings.

When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

ASX:MYS Historical Dividend Yield, February 23rd 2020

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That explains why we're not overly excited about MyState's flat earnings over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. MyState has delivered an average of 11% per year annual increase in its dividend, based on the past ten years of dividend payments.

To Sum It Up

Should investors buy MyState for the upcoming dividend? MyState's earnings per share have been essentially flat, and the company is paying out more than half of its earnings as dividends to shareholders. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.

Ever wonder what the future holds for MyState? See what the three analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

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