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

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. Although the dividend is now higher, the yield is only 1.2%, which is below the industry average.

View our latest analysis for Multi Commodity Exchange of India

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

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. 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. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Looking forward, earnings per share is forecast to rise by 166.5% over the next year. 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

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2013, the dividend has gone from ₹24.00 total annually to ₹19.09. This works out to be a decline of approximately 2.3% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Multi Commodity Exchange of India Could Grow Its Dividend

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 7.3% per year over the past five years. 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

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 a 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.

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. For example, we've picked out 2 warning signs for Multi Commodity Exchange of India that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.