In this article, I’ll take a few of the best dividend safety metrics and apply them to Michelmersh Brick Holdings, which pays a rolling dividend yield of 3.56%.
Michelmersh Brick Holdings (LON:MBH)’s dividend cover
Dividend cover is the most popular measure of dividend health. It is simply a company’s earnings per share divided by its dividend per share (EPS/DPS). Dividend cover of less than 1.5x earnings may indicate a danger.
- The rolling dividend cover is based on projected dividends and earnings. Michelmersh Brick Holdings’s rolling dividend cover is 2.11.
- The historic dividend cover is, of course, based on historic dividends and earnings.
Michelmersh Brick Holdings’s trailing twelve month dividend cover is 1.81.
Both of these figures are above the 1.5x safety threshold for Michelmersh Brick Holdings.
Michelmersh Brick Holdings (LON:MBH)’s balance sheet strength
Assessing balance sheet strength can also show a lot about dividend sustainability.
A highly leveraged company that struggles to meet its short-term liabilities is more likely to cut its dividend than a well-financed one. A safe level of net gearing (net debt to equity) on the balance sheet is generally considered to be 50 percent or less. Michelmersh Brick Holdings’s net gearing ratio is 18.5% - below the 50% threshold.
The current ratio (current assets / current liabilities ) assesses a company’s ability to service short term debts. A current ratio of less than one tends to be a worry. Michelmersh Brick Holdings’s current ratio is 2.32 - above the 1x threshold.
Michelmersh Brick Holdings (LON:MBH)’s fundamental momentum
A primary metric used by SocGen to assess dividend safety is an indicator known as the F-Score. Whereas most ratios (e.g. dividend cover) look solely at a company’s current financial state, the F-Score looks more deeply into the direction in which it’s financial state is moving. Companies are likely to have a safer dividend if the financial state is improving. Michelmersh Brick Holdings’s F-Score is 9. This suggests that Michelmersh Brick Holdings’s dividend is safe.
Does Michelmersh Brick Holdings have enough cash?
Shareholders could take additional steps to analyse dividend safety by comparing Free Cashflows Per Share (FCF PS) with the Dividend Per Share (DPS). Michelmersh Brick Holdings generated 90pin FCF PS. This is higher than the dividend payout 3.2p and indicates that the company has generated enough FCF to sustain dividends.
Disclaimer: These articles are provided for information purposes only. The content is not intended to be a personal recommendation. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser. The author has no position in the stocks mentioned, unless otherwise stated.