Is Buying MotorCycle Holdings Limited (ASX:MTO) For Its Upcoming AU$0.065 Dividend A Good Choice?

Ricardo Crouch
Updated

Have you been keeping an eye on MotorCycle Holdings Limited’s (ASX:MTO) upcoming dividend of AU$0.065 per share payable on the 03 October 2018? Then you only have 4 days left before the stock starts trading ex-dividend on the 11 September 2018. Investors looking for higher income-generating stocks to add to their portfolio should keep reading, as I examine MotorCycle Holdings’s latest financial data to analyse its dividend characteristics.

View our latest analysis for MotorCycle Holdings

5 questions I ask before picking a dividend stock

Whenever I am looking at a potential dividend stock investment, I always check these five metrics:

  • Is it paying an annual yield above 75% of dividend payers?

  • Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?

  • Has dividend per share risen in the past couple of years?

  • Is is able to pay the current rate of dividends from its earnings?

  • Will it be able to continue to payout at the current rate in the future?

ASX:MTO Historical Dividend Yield September 6th 18
ASX:MTO Historical Dividend Yield September 6th 18

Does MotorCycle Holdings pass our checks?

MotorCycle Holdings has a trailing twelve-month payout ratio of 72.2%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting lower payout ratio of 61.2%, leading to a dividend yield of around 5.0%. However, EPS should increase to A$0.25, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.

Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. The reality is that it is too early to consider MotorCycle Holdings as a dividend investment. It has only been consistently paying dividends for 2 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

In terms of its peers, MotorCycle Holdings generates a yield of 3.4%, which is on the low-side for Specialty Retail stocks.

Next Steps:

Whilst there are few things you may like about MotorCycle Holdings from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. There are three key aspects you should look at:

  1. Future Outlook: What are well-informed industry analysts predicting for MTO’s future growth? Take a look at our free research report of analyst consensus for MTO’s outlook.

  2. Valuation: What is MTO worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether MTO is currently mispriced by the market.

  3. Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.