Microware Group's (HKG:1985) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Microware Group Limited (HKG:1985) has announced that it will be increasing its dividend on the 9th of September to HK$0.06. This will take the annual payment from 8.9% to 11% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for Microware Group

Microware Group Is Paying Out More Than It Is Earning

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last dividend, Microware Group is earning enough to cover the payment, but the it makes up 257% of cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

EPS is set to grow by 5.4% over the next year if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could reach 96%, which probably can't continue without starting to put some pressure on the balance sheet.

Microware Group's Dividend Has Lacked Consistency

Microware Group has been paying dividends for a while, but the track record isn't stellar. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The first annual payment during the last 5 years was HK$0.06 in 2017, and the most recent fiscal year payment was HK$0.08. This implies that the company grew its distributions at a yearly rate of about 5.9% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

We Could See Microware Group's Dividend Growing

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Microware Group has grown earnings per share at 5.4% per year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 3 warning signs for Microware Group that investors need to be conscious of moving forward. Is Microware Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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