Stock Analysis

Combined Motor Holdings' (JSE:CMH) Dividend Will Be Increased To R1.10

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JSE:CMH
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The board of Combined Motor Holdings Limited (JSE:CMH) has announced that it will be increasing its dividend on the 20th of December to R1.10. This takes the dividend yield from 9.0% to 9.0%, which shareholders will be pleased with.

Check out our latest analysis for Combined Motor Holdings

Combined Motor Holdings' Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last dividend was quite easily covered by Combined Motor Holdings' earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

Looking forward, earnings per share could rise by 12.1% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 50% by next year, which we think can be pretty sustainable going forward.

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JSE:CMH Historic Dividend October 22nd 2021

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. The dividend has gone from R0.43 in 2011 to the most recent annual payment of R2.35. This implies that the company grew its distributions at a yearly rate of about 19% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's encouraging to see Combined Motor Holdings has been growing its earnings per share at 12% a year over the past five years. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.

Combined Motor Holdings Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Combined Motor Holdings has 3 warning signs (and 1 which shouldn't be ignored) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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