Multi-Chem's (SGX:AWZ) Dividend Will Be Increased To SGD0.088

The board of Multi-Chem Limited (SGX:AWZ) has announced that the dividend on 8th of September will be increased to SGD0.088, which will be 33% higher than last year's payment of SGD0.066 which covered the same period. This will take the dividend yield to an attractive 9.5%, providing a nice boost to shareholder returns.

See our latest analysis for Multi-Chem

Multi-Chem's Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before this announcement, Multi-Chem was paying out 82% of earnings, but a comparatively small 65% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

Over the next year, EPS could expand by 24.4% if the company continues along the path it has been on recently. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 77%, which is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

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 an annual total of SGD0.044 in 2013 to the most recent total annual payment of SGD0.177. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Multi-Chem Might Find It Hard To Grow Its Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Multi-Chem has grown earnings per share at 24% per year over the past five years. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which Multi-Chem hasn't been doing.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Multi-Chem's payments are rock solid. 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. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Multi-Chem that you should be aware of before investing. Is Multi-Chem 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.