Stock Analysis

MultiChoice Group (JSE:MCG) Has Announced A Dividend Of R5.65

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JSE:MCG
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MultiChoice Group Limited (JSE:MCG) has announced that it will pay a dividend of R5.65 per share on the 13th of September. This makes the dividend yield 4.4%, which will augment investor returns quite nicely.

See our latest analysis for MultiChoice Group

MultiChoice Group's Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. However, prior to this announcement, MultiChoice Group's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

EPS is set to fall by 98.3% over the next 12 months. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 66%, which is comfortable for the company to continue in the future.

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JSE:MCG Historic Dividend June 14th 2021

MultiChoice Group Doesn't Have A Long Payment History

The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. The dividend has gone from R5.69 in 2019 to the most recent annual payment of R5.65. Payments have been decreasing at a very slow pace in this time period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. MultiChoice Group has seen EPS rising for the last five years, at 141% per annum. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

MultiChoice Group Looks Like A Great Dividend Stock

Overall, we think that this is a great income investment, and we think that maintaining the dividend this year may have been a conservative choice. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for MultiChoice Group that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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