Stock Analysis

Multi-Chem (SGX:AWZ) Has Announced That It Will Be Increasing Its Dividend To SGD0.111

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Multi-Chem Limited's (SGX:AWZ) dividend will be increasing from last year's payment of the same period to SGD0.111 on 26th of May. This will take the dividend yield to an attractive 9.9%, providing a nice boost to shareholder returns.

Check out our latest analysis for Multi-Chem

Multi-Chem's Earnings Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. At the time of the last dividend payment, Multi-Chem was paying out a very large proportion of what it was earning and 148% 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 12.8% over the next year if recent trends continue. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 89%, which is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

SGX:AWZ Historic Dividend March 23rd 2023

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 2013, the annual payment back then was SGD0.044, compared to the most recent full-year payment of SGD0.177. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. 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.

Dividend Growth Could Be Constrained

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Multi-Chem has grown earnings per share at 13% per year over the past five years. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Multi-Chem's payments are rock solid. Strong earnings growth means Multi-Chem has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We don't think Multi-Chem is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for Multi-Chem that investors should know about before committing capital to this stock. Is Multi-Chem not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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