Multi Commodity Exchange of India's (NSE:MCX) Shareholders Will Receive A Smaller Dividend Than Last Year

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 1.9% 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 Dividend Is Well Covered By Earnings

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Based on the last payment, Multi Commodity Exchange of India's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Looking forward, earnings per share is forecast to rise by 13.8% over the next year. If the dividend continues on this path, the payout ratio could be 71% by next year, which we think can be pretty sustainable going forward.

Multi Commodity Exchange of India's Dividend Has Lacked Consistency

It's comforting to see that Multi Commodity Exchange of India has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. Since 2012, the dividend has gone from ₹24.00 to ₹27.60. This means that it has been growing its distributions at 1.6% per annum over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Multi Commodity Exchange of India has seen EPS rising for the last five years, at 13% per annum. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

Our Thoughts On Multi Commodity Exchange of India's Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. 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.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Multi Commodity Exchange of India that you should be aware of before investing. 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. 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.
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