Here’s why we’re reluctant to buy Molson Coors Beverage (NYSE: TAP) for its next dividend

Some investors rely on dividends to grow their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that Molson Coors Beverage Company (NYSE: TAP) is set to be ex-dividend in just 4 days. The ex-dividend date is one working day before the registration date, which is the deadline by which shareholders must be present on the books of the company to be eligible for the payment of a dividend. The ex-dividend date is an important date to know, as any purchase of shares made after this date may mean a late settlement which does not appear on the registration date. Therefore, investors in Molson Coors Beverage who purchase the shares on or after December 2 will not receive the dividend, which will be paid on December 15.

The company’s next dividend payment will be US $ 0.34 per share. Last year, in total, the company distributed US $ 1.36 to shareholders. Based on the value of last year’s payouts, Molson Coors Beverage has a rolling 3.0% return on the current share price of $ 45.6. If you are buying this business for its dividend, you should know if Molson Coors Beverage’s dividend is reliable and sustainable. So we need to determine whether Molson Coors Beverage can afford its dividend and whether the dividend could increase.

Dividends are usually paid out of the company’s profits, so if a company pays more than what it earns, its dividend is usually at risk of being reduced. Molson Coors Beverage reported an after-tax loss last year, which means it pays a dividend despite being unprofitable. Although this may be a one-time event, it is unlikely to be sustainable in the long term. Since the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If the cash income does not cover the dividend, the company would have to pay dividends in cash to the bank or by borrowing money, which is not sustainable in the long run. The good news is that she has only paid 7.5% of her free cash flow in the past year.

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

NYSE: TAP Historical Dividend November 27, 2021

Have profits and dividends increased?

Companies with declining profits are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold massively at the same time. Molson Coors Beverage reported a loss last year, and the general trend suggests that its profits have also declined in recent years, making us wonder if the dividend is in jeopardy.

Another essential way to measure a company’s dividend outlook is to measure its historical rate of dividend growth. Over the past 10 years, Molson Coors Beverage has increased its dividend to approximately 2.0% per year on average.

The bottom line

From a dividend perspective, should investors buy or avoid Molson Coors drinks? It’s hard to get used to Molson Coors Beverage paying a dividend despite a reported loss in the past year. However, at least the dividend was covered by free cash flow. Overall, this doesn’t seem like the most suitable dividend-paying stock for a long-term buy and hold investor.

However, if you are still interested in Molson Coors Beverage and want to learn more, it will be very helpful for you to know the risks that this stock faces. For example – Molson Coors Beverage has 2 warning signs we think you should be aware.

However, we don’t recommend simply buying the first dividend stock you see. Here is a list of interesting dividend paying stocks with a yield above 2% and a dividend coming soon.

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

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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