Multi-Chem's (SGX:AWZ) Shareholders Will Receive A Bigger Dividend Than Last Year

Multi-Chem Limited (SGX:AWZ) has announced that it will be increasing its periodic dividend on the 8th of September to SGD0.088, which will be 33% higher than last year's comparable payment amount of SGD0.066. This will take the annual payment to 9.5% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Multi-Chem

Multi-Chem's Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Multi-Chem's dividend made up quite a large proportion of earnings but only 65% 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.

Over the next year, EPS could expand by 24.4% 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 77% which is a bit high but can definitely be sustainable.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the dividend has gone from SGD0.044 total annually to SGD0.177. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year 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.

Multi-Chem Might Find It Hard To Grow Its Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Multi-Chem has impressed us by growing EPS at 24% per 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

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.

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 Multi-Chem that investors need to be conscious of moving forward. 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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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.