Multi Commodity Exchange of India (NSE:MCX) Has Announced That Its Dividend Will Be Reduced To ₹27.60

Multi Commodity Exchange of India Limited's (NSE:MCX) dividend is being reduced to ₹27.60 on the 3rd of October. Despite the cut, the dividend yield of 1.7% will still be comparable to other companies in the industry.

Check out our latest analysis for Multi Commodity Exchange of India

Multi Commodity Exchange of India's Earnings Easily Cover the Distributions

Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, Multi Commodity Exchange of India's earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Over the next year, EPS is forecast to expand by 6.0%. If recent patterns in the dividend continues, the payout ratio in 12 months could be 77% which is a bit high but can definitely be sustainable.

Multi Commodity Exchange of India's Dividend Has Lacked Consistency

Looking back, Multi Commodity Exchange of India's dividend hasn't been particularly consistent. This suggests that the dividend might not be the most reliable. Since 2012, the dividend has gone from ₹24.00 to ₹27.70. This implies that the company grew its distributions at a yearly rate of about 1.6% over that duration. 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.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Multi Commodity Exchange of India has grown earnings per share at 13% per year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

In Summary

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While Multi Commodity Exchange of India is earning enough to cover the payments, the cash flows are lacking. We don't think Multi Commodity Exchange of India is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Multi Commodity Exchange of India that investors need to be conscious of moving forward. We have also put together a list of global stocks with a solid dividend.

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This article by Simply Wall St is general in nature. 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.
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