Should You Buy Matson, Inc. (NYSE:MATX) For Its Upcoming Dividend?

Matson, Inc. (NYSE:MATX) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase Matson's shares on or after the 9th of November will not receive the dividend, which will be paid on the 1st of December.

The company's upcoming dividend is US$0.31 a share, following on from the last 12 months, when the company distributed a total of US$1.24 per share to shareholders. Last year's total dividend payments show that Matson has a trailing yield of 1.8% on the current share price of $70.1. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Matson

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Matson is paying out just 3.5% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. Luckily it paid out just 3.8% of its free cash flow last year.

It's positive to see that Matson'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?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Matson has grown its earnings rapidly, up 80% a year for the past five years. Matson earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky "beep-beep". We also like that it is reinvesting most of its profits in its business.'

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. It looks like the Matson dividends are largely the same as they were 10 years ago.

To Sum It Up

Should investors buy Matson for the upcoming dividend? Matson has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Matson looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

In light of that, while Matson has an appealing dividend, it's worth knowing the risks involved with this stock. Be aware that Matson is showing 3 warning signs in our investment analysis, and 1 of those shouldn't be ignored...

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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