It looks like MSA Safety Incorporated (NYSE:MSA) is about to go ex-dividend in the next 4 days. Investors can purchase shares before the 14th of August in order to be eligible for this dividend, which will be paid on the 10th of September.
MSA Safety's next dividend payment will be US$0.43 per share. Last year, in total, the company distributed US$1.72 to shareholders. Looking at the last 12 months of distributions, MSA Safety has a trailing yield of approximately 1.4% on its current stock price of $119.4. 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! So we need to check whether the dividend payments are covered, and if earnings are growing.
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. That's why it's good to see MSA Safety paying out a modest 43% of its earnings. 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. Thankfully its dividend payments took up just 39% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that MSA Safety's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, MSA Safety's earnings per share have been growing at 11% a year for the past five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. MSA Safety has delivered 6.0% dividend growth per year on average over the past 10 years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Is MSA Safety an attractive dividend stock, or better left on the shelf? We love that MSA Safety is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. There's a lot to like about MSA Safety, and we would prioritise taking a closer look at it.
While it's tempting to invest in MSA Safety for the dividends alone, you should always be mindful of the risks involved. For example, we've found 2 warning signs for MSA Safety that we recommend you consider before investing in the business.
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.
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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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