It Might Not Be A Great Idea To Buy A.P. Møller - Mærsk A/S (CPH:MAERSK B) For Its Next Dividend
A.P. Møller - Mærsk A/S (CPH:MAERSK B) stock is about to trade ex-dividend in 3 days time. If you purchase the stock on or after the 24th of March, you won't be eligible to receive this dividend, when it is paid on the 26th of March.
The upcoming dividend for A.P. Møller - Mærsk is ø150 per share, increased from last year's total dividends per share of ø22.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether A.P. Møller - Mærsk can afford its dividend, and if the dividend could grow.
See our latest analysis for A.P. Møller - Mærsk
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year, A.P. Møller - Mærsk paid out 96% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. A useful secondary check can be to evaluate whether A.P. Møller - Mærsk generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 13% of its cash flow last year.
It's good to see that while A.P. Møller - Mærsk's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see A.P. Møller - Mærsk's earnings per share have dropped 25% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. It looks like the A.P. Møller - Mærsk dividends are largely the same as they were ten years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.
The Bottom Line
Is A.P. Møller - Mærsk worth buying for its dividend? It's never great to see earnings per share declining, especially when a company is paying out 96% of its profit as dividends, which we feel is uncomfortably high. Yet cashflow was much stronger, which makes us wonder if there are some large timing issues in A.P. Møller - Mærsk's cash flows, or perhaps the company has written down some assets aggressively, reducing its income. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.
With that being said, if you're still considering A.P. Møller - Mærsk as an investment, you'll find it beneficial to know what risks this stock is facing. To help with this, we've discovered 2 warning signs for A.P. Møller - Mærsk that you should be aware of before investing in their shares.
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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
