Multi-Chem (SGX:AWZ) Is Paying Out A Larger Dividend Than Last Year

The board of Multi-Chem Limited (SGX:AWZ) has announced that it will be paying its dividend of SGD0.111 on the 26th of May, an increased payment from last year's comparable dividend. This makes the dividend yield 9.9%, which is above the industry average.

Check out our latest analysis for Multi-Chem

Multi-Chem's Earnings Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Multi-Chem was paying out quite a large proportion of both earnings and cash flow, with the dividend being 148% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

Over the next year, EPS could expand by 12.8% if the company continues along the path it has been on recently. If recent patterns in the dividend continue, the payout ratio in 12 months could be 89% which is a bit high but can definitely be sustainable.

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 dividend has gone from SGD0.044 total annually to SGD0.177. This means that it has been growing its distributions at 15% per annum over that time. 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.

Dividend Growth Could Be Constrained

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Multi-Chem has seen EPS rising for the last five years, at 13% per annum. 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.

Multi-Chem's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Multi-Chem's payments are rock solid. 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. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Multi-Chem that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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