Nanofilm Technologies International (SGX:MZH) Has Announced That Its Dividend Will Be Reduced To SGD0.0033

The board of Nanofilm Technologies International Limited (SGX:MZH) has announced it will be reducing its dividend by 70% from last year's payment of SGD0.011 on the 8th of September, with shareholders receiving SGD0.0033. This means that the annual payment is 2.2% of the current stock price, which is lower than what the rest of the industry is paying.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Nanofilm Technologies International's stock price has reduced by 34% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.

Check out our latest analysis for Nanofilm Technologies International

Nanofilm Technologies International's Payment Has Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, Nanofilm Technologies International's dividend was only 33% of earnings, however it was paying out 126% of free cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Looking forward, earnings per share is forecast to rise by 48.6% over the next year. If the dividend continues on this path, the payout ratio could be 5.2% by next year, which we think can be pretty sustainable going forward.

Nanofilm Technologies International Doesn't Have A Long Payment History

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 2 years, which isn't that long in the grand scheme of things. The dividend has gone from an annual total of SGD0.02 in 2021 to the most recent total annual payment of SGD0.022. This means that it has been growing its distributions at 4.9% per annum over that time. Nanofilm Technologies International hasn't been paying a dividend for very long, so we wouldn't get to excited about its record of growth just yet.

Dividend Growth May Be Hard To Achieve

Investors could be attracted to the stock based on the quality of its payment history. Earnings has been rising at 4.9% per annum over the last five years, which admittedly is a bit slow. While growth may be thin on the ground, Nanofilm Technologies International could always pay out a higher proportion of earnings to increase shareholder returns.

Our Thoughts On Nanofilm Technologies International's Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While Nanofilm Technologies International is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 8 analysts we track are forecasting for Nanofilm Technologies International for free with public analyst estimates for the company. 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.