Income Investors Should Know That Micro-Mechanics (Holdings) Ltd. (SGX:5DD) Goes Ex-Dividend Soon
Readers hoping to buy Micro-Mechanics (Holdings) Ltd. (SGX:5DD) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Micro-Mechanics (Holdings)'s shares before the 5th of November to receive the dividend, which will be paid on the 17th of November.
The company's next dividend payment will be S$0.03 per share, on the back of last year when the company paid a total of S$0.06 to shareholders. Based on the last year's worth of payments, Micro-Mechanics (Holdings) has a trailing yield of 2.4% on the current stock price of S$2.53. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. That's why it's good to see Micro-Mechanics (Holdings) paying out a modest 44% of its earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Dividends consumed 51% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
View our latest analysis for Micro-Mechanics (Holdings)
Click here to see how much of its profit Micro-Mechanics (Holdings) paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That explains why we're not overly excited about Micro-Mechanics (Holdings)'s flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Earnings growth has been slim and the company is paying out more than half of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Micro-Mechanics (Holdings) has seen its dividend decline 1.5% per annum on average over the past 10 years, which is not great to see.
To Sum It Up
Is Micro-Mechanics (Holdings) an attractive dividend stock, or better left on the shelf? Micro-Mechanics (Holdings) has struggled to grow earnings per share, and it's paying out less than half of its earnings and more than half its cash flow to shareholders as dividends. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.
So while Micro-Mechanics (Holdings) looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Case in point: We've spotted 1 warning sign for Micro-Mechanics (Holdings) you should be aware of.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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