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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 occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important as the process of settlement involves 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 3rd 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. Last year, in total, the company distributed S$0.06 to shareholders. Based on the last year's worth of payments, Micro-Mechanics (Holdings) has a trailing yield of 3.2% on the current stock price of SGD1.85. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Micro-Mechanics (Holdings) has been able to grow its dividends, or if the dividend might be cut.
Check out our latest analysis for Micro-Mechanics (Holdings)
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Micro-Mechanics (Holdings) distributed an unsustainably high 128% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Micro-Mechanics (Holdings) paid out more free cash flow than it generated - 136%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.
Cash is slightly more important than profit from a dividend perspective, but given Micro-Mechanics (Holdings)'s payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.
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?
When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're discomforted by Micro-Mechanics (Holdings)'s 11% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.