MultiChoice Group Limited (JSE:MCG) will pay a dividend of R5.65 on the 12th of September. The dividend yield will be 4.4% based on this payment which is still above the industry average.
See our latest analysis for MultiChoice Group
MultiChoice Group Doesn't Earn Enough To Cover Its Payments
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, the company was paying out 225% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 32%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
EPS is set to grow by 57.0% over the next year if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could reach 113%, which probably can't continue without starting to put some pressure on the balance sheet.
MultiChoice Group Doesn't Have A Long Payment History
The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. The dividend has gone from R5.69 in 2019 to the most recent annual payment of R5.65. Dividend payments have shrunk at a rate of less than 1% per annum over this time frame. 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.
MultiChoice Group Might Find It Hard To Grow Its Dividend
The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see MultiChoice Group has been growing its earnings per share at 57% a year over the past five years. Strong earnings is nice to see, but unless this can be sustained on minimal reinvestment of profits, we would question whether dividends will follow suit.
In Summary
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about MultiChoice Group's payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.
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 example, we've picked out 2 warning signs for MultiChoice Group that investors should know about before committing capital to this stock. Is MultiChoice Group 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.
About JSE:MCG
MultiChoice Group
Through its subsidiaries, operates video-entertainment subscriber platforms in South Africa, rest of Africa, Europe, and internationally.
High growth potential and fair value.
