Stock Analysis

MultiChoice Group (JSE:MCG) Will Pay A Dividend Of ZAR5.65

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JSE:MCG
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The board of MultiChoice Group Limited (JSE:MCG) has announced that it will pay a dividend of ZAR5.65 per share on the 12th of September. Based on this payment, the dividend yield on the company's stock will be 4.7%, which is an attractive boost to shareholder returns.

See our latest analysis for MultiChoice Group

MultiChoice Group's Earnings Easily Cover the Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, MultiChoice Group's profits didn't cover the dividend, but the company was generating enough cash instead. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

Looking forward, earnings per share is forecast to rise exponentially over the next year. Assuming the dividend continues along recent trends, we estimate that the payout ratio could reach 41%, which is in a comfortable range for us.

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JSE:MCG Historic Dividend July 15th 2022

MultiChoice Group Is Still Building Its Track Record

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 3 years, which isn't that long in the grand scheme of things. Since 2019, the dividend has gone from ZAR5.69 total annually to ZAR5.65. The dividend has shrunk at a rate of less than 1% a year over this period. A company that decreases its dividend over time generally isn't what we are looking for.

MultiChoice Group Might Find It Hard To Grow Its Dividend

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 50% per annum. EPS has been growing well, but MultiChoice Group has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.

Our Thoughts On MultiChoice Group's Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. 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.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 3 warning signs for MultiChoice Group that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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