Nanofilm Technologies International (SGX:MZH) Is Paying Out A Larger Dividend Than Last Year

The board of Nanofilm Technologies International Limited (SGX:MZH) has announced that the dividend on 18th of May will be increased to SGD0.011, which will be 10.0% higher than last year's payment of SGD0.01 which covered the same period. Despite this raise, the dividend yield of 1.5% is only a modest boost to shareholder returns.

See our latest analysis for Nanofilm Technologies International

Nanofilm Technologies International'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. Based on the last payment, Nanofilm Technologies International was paying only paying out a fraction of earnings, but the payment was a massive 128% of 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 89.1% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 6.4%, which is in the range that makes us comfortable with the sustainability of the dividend.

Nanofilm Technologies International Is Still Building Its Track Record

Without a track record of dividend payments, we can't make a judgement on how stable it has been. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.

Dividend Growth May Be Hard To Achieve

Investors could be attracted to the stock based on the quality of its payment history. Earnings have grown at around 4.6% a year for the past five years, which isn't massive but still better than seeing them shrink. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.

Our Thoughts On Nanofilm Technologies International's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Nanofilm Technologies International's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Nanofilm Technologies International is a great stock to add to your portfolio if income is your focus.

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 1 warning sign for Nanofilm Technologies International that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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