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Readers hoping to buy MTU Aero Engines AG (ETR:MTX) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Thus, you can purchase MTU Aero Engines' shares before the 9th of May in order to receive the dividend, which the company will pay on the 13th of May.
The company's upcoming dividend is €2.20 a share, following on from the last 12 months, when the company distributed a total of €2.20 per share to shareholders. Last year's total dividend payments show that MTU Aero Engines has a trailing yield of 0.7% on the current share price of €319.00. If you buy this business for its dividend, you should have an idea of whether MTU Aero Engines's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. MTU Aero Engines is paying out just 19% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year, it paid out dividends equivalent to 263% 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 MTU Aero Engines intends to continue funding this dividend, or if it could be forced to cut the payment.
While MTU Aero Engines'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. Cash is king, as they say, and were MTU Aero Engines to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
See our latest analysis for MTU Aero Engines
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.