Micro-Mechanics (Holdings) (SGX:5DD) Has Re-Affirmed Its Dividend Of S$0.06

Micro-Mechanics (Holdings) Ltd. (SGX:5DD) will pay a dividend of S$0.06 on the 22nd of February. Based on this payment, the dividend yield on the company's stock will be 4.2%, which is an attractive boost to shareholder returns.

Check out our latest analysis for Micro-Mechanics (Holdings)

Micro-Mechanics (Holdings) Is Paying Out More Than It Is Earning

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Micro-Mechanics (Holdings) was paying out 90% of earnings and more than 75% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but we don't think that there are necessarily signs that the dividend might be unsustainable.

The next 12 months is set to see EPS grow by 13.1%. However, if the dividend continues growing along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 109% over the next year.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2012, the dividend has gone from S$0.03 to S$0.12. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Micro-Mechanics (Holdings) Could Grow Its Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see Micro-Mechanics (Holdings) has been growing its earnings per share at 8.5% a year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.

Our Thoughts On Micro-Mechanics (Holdings)'s Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Micro-Mechanics (Holdings)'s payments, as there could be some issues with sustaining them into the future. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for Micro-Mechanics (Holdings) that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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