Monadelphous Group (ASX:MND) Has Announced That It Will Be Increasing Its Dividend To A$0.25

Monadelphous Group Limited (ASX:MND) has announced that it will be increasing its periodic dividend on the 30th of September to A$0.25, which will be 19% higher than last year's comparable payment amount of A$0.21. This will take the annual payment to 3.5% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Monadelphous Group

Monadelphous Group's Earnings Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. The last payment made up 94% of earnings, but cash flows were much higher. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

The next year is set to see EPS grow by 62.4%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 57% which brings it into quite a comfortable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of A$1.25 in 2012 to the most recent total annual payment of A$0.45. This works out to be a decline of approximately 9.7% per year over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth Is Doubtful

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Over the past five years, it looks as though Monadelphous Group's EPS has declined at around 5.1% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

Our Thoughts On Monadelphous Group's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Monadelphous Group's payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Monadelphous Group that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.