Micro-Mechanics (Holdings) (SGX:5DD) Is Paying Out A Dividend Of SGD0.08

Micro-Mechanics (Holdings) Ltd. (SGX:5DD) has announced that it will pay a dividend of SGD0.08 per share on the 18th of November. This means that the annual payment will be 5.2% of the current stock price, which is in line with the average for the industry.

Check out the opportunities and risks within the SG Semiconductor industry.

Micro-Mechanics (Holdings)'s Earnings Easily Cover The Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. At the time of the last dividend payment, Micro-Mechanics (Holdings) was paying out a very large proportion of what it was earning and 96% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

EPS is set to grow by 21.8% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 92%, which is on the higher side, but certainly still feasible.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2012, the annual payment back then was SGD0.03, compared to the most recent full-year payment of SGD0.14. This implies that the company grew its distributions at a yearly rate of about 17% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Has Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Micro-Mechanics (Holdings) has been growing its earnings per share at 6.1% a year over the past five years. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

Micro-Mechanics (Holdings)'s Dividend Doesn't Look Sustainable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The track record isn't great, and the payments are a bit high to be considered sustainable. 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. Taking the debate a bit further, we've identified 1 warning sign for Micro-Mechanics (Holdings) that investors need to be conscious of moving forward. 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.