Yahoo Finance Why It Might Not Make Sense To Buy Movado Group, Inc. (NYSE:MOV) For Its Upcoming Dividend
Movado Group, Inc. (NYSE:MOV) is about to trade ex-dividend in the next three days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase Movado Group's shares before the 12th of June in order to be eligible for the dividend, which will be paid on the 26th of June.
The company's upcoming dividend is US$0.35 a share, following on from the last 12 months, when the company distributed a total of US$1.40 per share to shareholders. Last year's total dividend payments show that Movado Group has a trailing yield of 5.3% on the current share price of US$26.20. If you buy this business for its dividend, you should have an idea of whether Movado Group's dividend is reliable and sustainable. As a result, readers should always check whether Movado Group has been able to grow its dividends, or if the dividend might be cut.
View our latest analysis for Movado Group
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. It paid out 77% 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 concerned if earnings began to decline. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Fortunately, it paid out only 43% of its free cash flow in the past year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see how much of its profit Movado Group 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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're discomforted by Movado Group's 7.3% 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, Movado Group has increased its dividend at approximately 16% a year on average. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Movado Group is already paying out 77% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.
Final Takeaway
Has Movado Group got what it takes to maintain its dividend payments? The payout ratios are within a reasonable range, implying the dividend may be sustainable. Declining earnings are a serious concern, however, and could pose a threat to the dividend in future. To summarise, Movado Group looks okay on this analysis, although it doesn't appear a stand-out opportunity.
If you're not too concerned about Movado Group's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. For example, we've found 2 warning signs for Movado Group that we recommend you consider before investing in the business.
If you're in the market for strong dividend payers, we recommend checking our selection of top 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.
