Stock Analysis

MultiChoice Group's (JSE:MCG) Dividend Will Be ZAR5.65

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The board of MultiChoice Group Limited (JSE:MCG) has announced that it will pay a dividend on the 12th of September, with investors receiving ZAR5.65 per share. This makes the dividend yield 4.7%, which will augment investor returns quite nicely.

Check out 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. Before making this announcement, MultiChoice Group's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

According to analysts, EPS should be several times higher next year. If the dividend continues along recent trends, we estimate the payout ratio will be 45%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.

JSE:MCG Historic Dividend August 8th 2022

MultiChoice Group Doesn't Have A Long Payment History

Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. The dividend has gone from an annual total of ZAR5.69 in 2019 to the most recent total annual payment of ZAR5.65. Dividend payments have shrunk at a rate of less than 1% per annum over this time frame. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth Could Be Constrained

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see that MultiChoice Group has been growing its earnings per share at 50% a year over the past five years. Although earnings per share is up nicely MultiChoice Group is paying out 178% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.

Our Thoughts On MultiChoice Group's Dividend

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. 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. We don't think MultiChoice Group is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 3 warning signs for MultiChoice Group that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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