Here's Why We're Wary Of Buying Mativ Holdings' (NYSE:MATV) For Its Upcoming Dividend
Mativ Holdings, Inc. (NYSE:MATV) stock is about to trade ex-dividend in three days. The ex-dividend date is one business day 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Mativ Holdings investors that purchase the stock on or after the 18th of August will not receive the dividend, which will be paid on the 23rd of September.
The company's upcoming dividend is US$0.40 a share, following on from the last 12 months, when the company distributed a total of US$1.76 per share to shareholders. Calculating the last year's worth of payments shows that Mativ Holdings has a trailing yield of 7.3% on the current share price of $24.1. If you buy this business for its dividend, you should have an idea of whether Mativ Holdings's dividend is reliable and sustainable. As a result, readers should always check whether Mativ Holdings has been able to grow its dividends, or if the dividend might be cut.
View our latest analysis for Mativ Holdings
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. Mativ Holdings is paying out an acceptable 71% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Mativ Holdings generated enough free cash flow to afford its dividend. Over the last year, it paid out dividends equivalent to 358% of what it generated in free cash flow, a disturbingly high percentage. It's pretty hard to pay out more than you earn, so we wonder how Mativ Holdings intends to continue funding this dividend, or if it could be forced to cut the payment.
While Mativ Holdings's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Mativ Holdings's ability to maintain its dividend.
Click here to see how much of its profit Mativ Holdings paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're discomforted by Mativ Holdings's 12% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Mativ Holdings has increased its dividend at approximately 19% a year on average. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.
To Sum It Up
Is Mativ Holdings an attractive dividend stock, or better left on the shelf? It's definitely not great to see earnings per share shrinking. The company paid out an acceptable percentage of its income, but an uncomfortably high percentage of its cash flow over the past year. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.
Although, if you're still interested in Mativ Holdings and want to know more, you'll find it very useful to know what risks this stock faces. For instance, we've identified 3 warning signs for Mativ Holdings (2 are potentially serious) you should be aware of.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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