MS INTERNATIONAL's (LON:MSI) Dividend Will Be Increased To £0.13

The board of MS INTERNATIONAL plc (LON:MSI) has announced that it will be increasing its dividend by 73% on the 18th of August to £0.13, up from last year's comparable payment of £0.075. Although the dividend is now higher, the yield is only 1.5%, which is below the industry average.

See our latest analysis for MS INTERNATIONAL

MS INTERNATIONAL's Dividend Is Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, MS INTERNATIONAL's earnings easily covered the dividend, but free cash flows were negative. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Over the next year, EPS could expand by 4.3% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 57%, which is in the range that makes us comfortable with the sustainability of the dividend.

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 2013, the annual payment back then was £0.08, compared to the most recent full-year payment of £0.095. This works out to be a compound annual growth rate (CAGR) of approximately 1.7% a year over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

MS INTERNATIONAL May Find It Hard To Grow The Dividend

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. However, MS INTERNATIONAL has only grown its earnings per share at 4.3% per annum over the past five years. Growth of 4.3% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

Our Thoughts On MS INTERNATIONAL's Dividend

In summary, while it's always good to see the dividend being raised, we don't think MS INTERNATIONAL's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. Just as an example, we've come across 2 warning signs for MS INTERNATIONAL you should be aware of, and 1 of them is potentially serious. 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.