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Here's What We Like About Martin Marietta Materials' (NYSE:MLM) Upcoming Dividend

Martin Marietta Materials, Inc. (NYSE:MLM) is about to trade ex-dividend in the next four days. You can purchase shares before the 31st of August in order to receive the dividend, which the company will pay on the 30th of September.

Martin Marietta Materials's upcoming dividend is US$0.57 a share, following on from the last 12 months, when the company distributed a total of US$2.28 per share to shareholders. Calculating the last year's worth of payments shows that Martin Marietta Materials has a trailing yield of 1.1% on the current share price of $211.3. If you buy this business for its dividend, you should have an idea of whether Martin Marietta Materials's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Martin Marietta Materials

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Martin Marietta Materials paid out just 22% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 22% of its free cash flow as dividends last year, which is conservatively low.

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 the company's payout ratio, plus analyst estimates of its future dividends.

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historic-dividend

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. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Martin Marietta Materials has grown its earnings rapidly, up 30% a year for the past five years. Martin Marietta Materials looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Martin Marietta Materials has lifted its dividend by approximately 3.6% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Martin Marietta Materials is keeping back more of its profits to grow the business.

The Bottom Line

From a dividend perspective, should investors buy or avoid Martin Marietta Materials? Martin Marietta Materials has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Overall we think this is an attractive combination and worthy of further research.

While it's tempting to invest in Martin Marietta Materials for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 2 warning signs for Martin Marietta Materials and you should be aware of them before buying any 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.

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. 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.

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