Multi Commodity Exchange of India (NSE:MCX) Has Announced That It Will Be Increasing Its Dividend To ₹19.09

Multi Commodity Exchange of India Limited (NSE:MCX) has announced that it will be increasing its dividend from last year's comparable payment on the 24th of October to ₹19.09. This takes the annual payment to 1.2% of the current stock price, which unfortunately is below what the industry is paying.

View our latest analysis for Multi Commodity Exchange of India

Multi Commodity Exchange of India'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, Multi Commodity Exchange of India's dividend was only 65% of earnings, however it was paying out 139% of free cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Over the next year, EPS is forecast to expand by 166.5%. If the dividend continues along recent trends, we estimate the payout ratio will be 30%, 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. The dividend has gone from an annual total of ₹24.00 in 2013 to the most recent total annual payment of ₹19.09. This works out to be a decline of approximately 2.3% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.

We Could See Multi Commodity Exchange of India's Dividend Growing

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Multi Commodity Exchange of India has grown earnings per share at 7.3% 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.

Our Thoughts On Multi Commodity Exchange of India's Dividend

Overall, we always like to see the dividend being raised, but we don't think Multi Commodity Exchange of India will make a great income stock. While Multi Commodity Exchange of India is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for Multi Commodity Exchange of India that investors should take into consideration. 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.