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Micro-Mechanics (Holdings) Ltd. (SGX:5DD) has announced that it will pay a dividend of SGD0.03 per share on the 18th of November. This means that the annual payment will be 3.7% of the current stock price, which is in line with the average for the industry.
See our latest analysis for Micro-Mechanics (Holdings)
Micro-Mechanics (Holdings)'s Projections Indicate Future Payments May Be Unsustainable
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Before making this announcement, Micro-Mechanics (Holdings)'s dividend was higher than its profits, but the free cash flows quite comfortably covered it. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.
Looking forward, EPS could fall by 9.1% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 126%, which could put the dividend under pressure if earnings don't start to improve.
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2014, the annual payment back then was SGD0.03, compared to the most recent full-year payment of SGD0.06. This implies that the company grew its distributions at a yearly rate of about 7.2% over that duration. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.
Dividend Growth May Be Hard To Come By
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's not great to see that Micro-Mechanics (Holdings)'s earnings per share has fallen at approximately 9.1% per year over the past five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.
Micro-Mechanics (Holdings)'s Dividend Doesn't Look Sustainable
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Micro-Mechanics (Holdings)'s payments, as there could be some issues with sustaining them into the future. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We don't think Micro-Mechanics (Holdings) is a great stock to add to your portfolio if income is your focus.