Metcash (ASX:MTS) Has Announced That It Will Be Increasing Its Dividend To AU$0.10
Metcash Limited's (ASX:MTS) dividend will be increasing to AU$0.10 on 28th of January. This makes the dividend yield 4.5%, which is above the industry average.
Check out our latest analysis for Metcash
Metcash's Payment Has Solid Earnings Coverage
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Metcash was paying out 83% of earnings and more than 75% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but we don't think that there are necessarily signs that the dividend might be unsustainable.
Earnings per share is forecast to rise by 11.2% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 85% which is a bit high but can definitely be sustainable.
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2011, the first annual payment was AU$0.27, compared to the most recent full-year payment of AU$0.21. The dividend has shrunk at around 2.5% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.
The Dividend Has Growth Potential
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Metcash has seen EPS rising for the last five years, at 7.1% per annum. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.
Our Thoughts On Metcash's Dividend
Overall, we always like to see the dividend being raised, but we don't think Metcash will make a great income stock. The payments are bit high to be considered sustainable, and the track record isn't the best. We don't think Metcash is a great stock to add to your portfolio if income is your focus.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. 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 Metcash that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.
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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.
