Metrofile Holdings (JSE:MFL) Will Pay A Smaller Dividend Than Last Year

Metrofile Holdings Limited (JSE:MFL) is reducing its dividend from last year's comparable payment to ZAR0.04 on the 7th of April. Based on this payment, the dividend yield will be 3.4%, which is lower than the average for the industry.

Metrofile Holdings' Distributions May Be Difficult To Sustain

If it is predictable over a long period, even low dividend yields can be attractive. Even though Metrofile Holdings isn't generating a profit, it is generating healthy free cash flows that easily cover the dividend. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.

Looking forward, earnings per share could rise by 7.8% over the next year if the trend from the last few years continues. We like to see the company moving towards profitability, but this probably won't be enough for it to post positive net income this year. The positive free cash flows give us some comfort, however, that the dividend could continue to be sustained.

See our latest analysis for Metrofile Holdings

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of ZAR0.16 in 2015 to the most recent total annual payment of ZAR0.08. This works out to be a decline of approximately 6.7% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.

We Could See Metrofile Holdings' Dividend Growing

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Metrofile Holdings has impressed us by growing EPS at 7.8% per year over the past five years. It's not great that the company is not turning a profit, but the decent growth in recent years is certainly a positive sign. As long as the company becomes profitable soon, it is on a trajectory that could see it being a solid dividend payer.

Our Thoughts On Metrofile Holdings' Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. 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 would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 4 warning signs for Metrofile Holdings (of which 2 are potentially serious!) you should know about. Is Metrofile Holdings 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.