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Multi-Chem Limited (SGX:AWZ) will pay a dividend of SGD0.111 on the 13th of September. This takes the dividend yield to 8.6%, which shareholders will be pleased with.
See our latest analysis for Multi-Chem
Multi-Chem's Earnings Easily Cover The Distributions
A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Multi-Chem was paying out quite a large proportion of both earnings and cash flow, with the dividend being 951% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.
If the trend of the last few years continues, EPS will grow by 32.8% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 68% by next year, which is in a pretty sustainable range.
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 dividend has gone from SGD0.044 total annually to SGD0.243. This works out to be a compound annual growth rate (CAGR) of approximately 19% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.
The Dividend Looks Likely To Grow
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Multi-Chem has impressed us by growing EPS at 33% per year over the past five years. However, Multi-Chem isn't reinvesting a lot back into the business, so we wonder how quickly it will be able to grow in the future.
In Summary
In summary, while it's always good to see the dividend being raised, we don't think Multi-Chem's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Multi-Chem is a great stock to add to your portfolio if income is your focus.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 3 warning signs for Multi-Chem (of which 1 is potentially serious!) you should know about. Is Multi-Chem not quite the opportunity you were looking for? Why not check out our selection of top 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.