Here's Why We're Wary Of Buying Moelis Australia Limited's (ASX:MOE) For Its Upcoming Dividend

Simply Wall St

Moelis Australia Limited (ASX:MOE) stock is about to trade ex-dividend in 4 days time. Ex-dividend means that investors that purchase the stock on or after the 26th of February will not receive this dividend, which will be paid on the 4th of March.

Moelis Australia's next dividend payment will be AU$0.10 per share, and in the last 12 months, the company paid a total of AU$0.10 per share. Based on the last year's worth of payments, Moelis Australia has a trailing yield of 1.7% on the current stock price of A$6. 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.

Check out our latest analysis for Moelis Australia

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Moelis Australia paid out more than half (52%) of its earnings last year, which is a regular payout ratio for most companies.

Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.

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

ASX:MOE Historical Dividend Yield, February 21st 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 fall far enough, the company could be forced to cut its dividend. With that in mind, we're not enthused to see that Moelis Australia's earnings per share have remained effectively flat 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. In the last two years, Moelis Australia has lifted its dividend by approximately 20% a year on average.

Final Takeaway

From a dividend perspective, should investors buy or avoid Moelis Australia? Moelis Australia's earnings per share have been essentially flat, and the company is paying out more than half of its earnings as dividends to shareholders. This is not an overtly appealing combination of characteristics, and we're just not that interested in this company's dividend.

Curious about whether Moelis Australia has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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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