Multi-Chem's (SGX:AWZ) Dividend Will Be Increased To SGD0.088

Multi-Chem Limited (SGX:AWZ) has announced that it will be increasing its dividend from last year's comparable payment on the 8th of September to SGD0.088. This makes the dividend yield 10.0%, which is above the industry average.

View our latest analysis for Multi-Chem

Multi-Chem's Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Multi-Chem's dividend made up quite a large proportion of earnings but only 72% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

Earnings per share could rise by 24.4% over the next year if things go the same way as they have for the last few years. If recent patterns in the dividend continue, the payout ratio in 12 months could be 77% which is a bit high but can definitely be sustainable.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of SGD0.044 in 2013 to the most recent total annual payment of SGD0.199. This means that it has been growing its distributions at 16% 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

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. It's encouraging to see that Multi-Chem has been growing its earnings per share at 24% a year over the past five years. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which Multi-Chem hasn't been doing.

In Summary

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 the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for Multi-Chem that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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