Multi Commodity Exchange of India's (NSE:MCX) Upcoming Dividend Will Be Larger Than Last Year's

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 1.1%, which is below the industry average.

View our latest analysis for Multi Commodity Exchange of India

Multi Commodity Exchange of India's Payment Has Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. The last payment was quite easily covered by earnings, but it made up 139% 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.

Over the next year, EPS is forecast to expand by 169.7%. If the dividend continues on this path, the payout ratio could be 30% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2013, the dividend has gone from ₹24.00 total annually to ₹19.09. Doing the maths, this is a decline of about 2.3% per year. A company that decreases its dividend over time generally isn't what we are looking for.

Multi Commodity Exchange of India Could Grow Its Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Multi Commodity Exchange of India has impressed us by growing EPS 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.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Multi Commodity Exchange of India's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. 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.