Does it make sense to buy Masco Corporation (NYSE:MAS) before it goes ex-dividend?

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Masco Company (NYSE:MAS) the stock is set to trade ex-dividend in 3 days. Generally, the ex-dividend date is one business day before the record date which is the date a company determines which shareholders are eligible to receive a dividend. The ex-dividend date is important because each time a stock is bought or sold, the transaction takes at least two business days to settle. So you can buy shares of Masco before November 9 in order to receive the dividend, which the company will pay on November 28.

The company’s next dividend payment will be $0.28 per share. Last year, in total, the company distributed US$1.12 to shareholders. Based on last year’s payouts, Masco stock has a yield of about 2.6% on the current share price of $43.55. Dividends are an important source of income for many shareholders, but the health of the company is essential to sustaining those dividends. That’s why we always have to check if the dividend payouts seem sustainable and if the business is growing.

See our latest analysis for Masco

Dividends are usually paid out of company earnings, so if a company pays out more than it has earned, its dividend is usually at risk of being reduced. Fortunately, Masco’s payout ratio is modest, at just 33% of profits. A useful secondary check may be to assess whether Masco has generated enough free cash flow to pay its dividend. It distributed 38% of its free cash flow as dividends, a comfortable level of distribution for most companies.

It’s positive to see that Masco’s dividend is covered by both earnings and cash flow, as that’s usually a sign that the dividend is sustainable, and a lower payout ratio usually suggests a higher payout margin. safety before the dividend is reduced.

Click here to see the company’s payout ratio, as well as analysts’ estimates of its future dividends.

NYSE:MAS Historic Dividend November 5, 2022

Have earnings and dividends increased?

Companies with consistently rising earnings per share tend to create the best dividend-paying stocks because they generally find it easier to increase dividends per share. If business goes into a recession and the dividend is cut, the company could see its value drop precipitously. It’s encouraging to see that Masco has grown its profits rapidly, up 21% per year over the past five years. Earnings per share have grown very rapidly and the company is paying out a relatively small percentage of its earnings and cash flow. Companies with rising earnings and low payout rates are often the best long-term dividend-paying stocks because the company can both increase its earnings and increase the percentage of earnings it pays out, essentially multiplying the dividend.

Many investors will gauge a company’s dividend yield by evaluating how much dividend payouts have changed over time. Masco has recorded dividend growth of 14% per year on average over the past 10 years. Earnings per share and dividends have both increased rapidly lately, which is great to see.

Last takeaway

Is Masco an attractive dividend-paying stock, or is it better left on the shelf? Masco has been growing its profits at a rapid pace and has a moderately low payout ratio, implying that it is reinvesting heavily in its business; a perfect combination. Overall, we think this is an attractive combination worthy of further research.

With that in mind, an essential part of thorough stock research is being aware of all the risks that stocks currently face. We have identified 3 warning signs with Masco (at least 1, which is significant), and understanding them should be part of your investment process.

As a general rule, we don’t recommend simply buying the first dividend-paying stock you see. Here is a curated list of attractive stocks that are strong dividend payers.

Valuation is complex, but we help make it simple.

Find out if Mask is potentially overvalued or undervalued by viewing our full analysis, which includes fair value estimates, risks and warnings, dividends, insider trading and financial health.

See the free analysis

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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