Micro-Mechanics (Holdings)'s (SGX:5DD) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Micro-Mechanics (Holdings) Ltd. (SGX:5DD) has announced that it will be increasing its dividend on the 19th of November to S$0.08. This will take the annual payment from 4.4% to 4.4% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for Micro-Mechanics (Holdings)

Micro-Mechanics (Holdings) Doesn't Earn Enough To Cover Its Payments

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Micro-Mechanics (Holdings) was paying out quite a large proportion of both earnings and cash flow, with the dividend being 103% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

The next 12 months is set to see EPS grow by 25.5%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 102%, which probably can't continue putting some pressure on the balance sheet.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2011, the first annual payment was S$0.04, compared to the most recent full-year payment of S$0.14. This means that it has been growing its distributions at 13% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

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. We are encouraged to see that Micro-Mechanics (Holdings) has grown earnings per share at 8.7% per 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.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Micro-Mechanics (Holdings)'s payments are rock solid. Strong earnings growth means Micro-Mechanics (Holdings) has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. 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. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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