Nanofilm Technologies International (SGX:MZH) Is Increasing Its Dividend To SGD0.011

Nanofilm Technologies International Limited (SGX:MZH) will increase its dividend on the 18th of May to SGD0.011, which is 10.0% higher than last year's payment from the same period of SGD0.01. Even though the dividend went up, the yield is still quite low at only 1.5%.

See our latest analysis for Nanofilm Technologies International

Nanofilm Technologies International's Dividend Is Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. 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 78.3% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 6.7%, which is in the range that makes us comfortable with the sustainability of the dividend.

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. Since 2021, the annual payment back then was SGD0.02, compared to the most recent full-year payment of SGD0.022. This works out to be a compound annual growth rate (CAGR) of approximately 4.9% a year over that time. It's good to see at least some dividend growth. Yet with a relatively short dividend paying history, we wouldn't want to depend on this dividend too heavily.

The Dividend's Growth Prospects Are Limited

The company's investors will be pleased to have been receiving dividend income for some time. Earnings has been rising at 4.9% per annum over the last five years, which admittedly is a bit slow. While EPS growth is quite low, Nanofilm Technologies International has the option to increase the payout ratio to return more cash to shareholders.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Earnings growth generally bodes well for the future value of company dividend payments. See if the 8 Nanofilm Technologies International analysts we track are forecasting continued growth with our free report on analyst estimates for the company. 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.