Stock Analysis

Combined Motor Holdings (JSE:CMH) Is Increasing Its Dividend To R2.25

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Combined Motor Holdings Limited's (JSE:CMH) dividend will be increasing on the 13th of June to R2.25, with investors receiving 80% more than last year. This makes the dividend yield 12%, which is above the industry average.

View our latest analysis for Combined Motor Holdings

Combined Motor Holdings' Earnings Easily Cover the Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. However, prior to this announcement, Combined Motor Holdings' dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS could expand by 13.7% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 60% by next year, which is in a pretty sustainable range.

JSE:CMH Historic Dividend May 6th 2022

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from R0.49 in 2012 to the most recent annual payment of R2.35. This means that it has been growing its distributions at 17% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Combined Motor Holdings has impressed us by growing EPS at 14% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Combined Motor Holdings' prospects of growing its dividend payments in the future.

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. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. 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. 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 Combined Motor Holdings that investors should take into consideration. Is Combined Motor Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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