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Moog Inc. (NYSE:MOG.A) stock is about to trade ex-dividend in 3 days. This means that investors who purchase shares on or after the 13th of August will not receive the dividend, which will be paid on the 4th of September.
Moog's upcoming dividend is US$0.25 a share, following on from the last 12 months, when the company distributed a total of US$1.00 per share to shareholders. Based on the last year's worth of payments, Moog has a trailing yield of 1.7% on the current stock price of $59.3. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Moog can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Moog
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Moog has a low and conservative payout ratio of just 19% of its income after tax. 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. It paid out 18% of its free cash flow as dividends last year, which is conservatively low.
It's positive to see that Moog's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. 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 encouraged by the steady growth at Moog, with earnings per share up 2.6% on average over the last five years. Growth has been anaemic. Yet with more than 75% of its earnings being kept in the business, there is ample room to reinvest in growth or lift the payout ratio - either of which could increase the dividend.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Moog's dividend payments are broadly unchanged compared to where they were two years ago.
Final Takeaway
Is Moog an attractive dividend stock, or better left on the shelf? Earnings per share growth has been growing somewhat, and Moog is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Moog is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about Moog, and we would prioritise taking a closer look at it.