Michael Hill International (ASX:MHJ) Is Reducing Its Dividend To A$0.0175
Michael Hill International Limited's (ASX:MHJ) dividend is being reduced from last year's payment covering the same period to A$0.0175 on the 22nd of March. This means that the annual payment will be 4.8% of the current stock price, which is in line with the average for the industry.
Check out our latest analysis for Michael Hill International
Michael Hill International's Dividend Is Well Covered By Earnings
We aren't too impressed by dividend yields unless they can be sustained over time. Before making this announcement, the company's dividend was higher than its profits, and made up 78% of cash flows. The company could be more focused on returning cash to shareholders, but this could indicate that growth opportunities are few and far between.
Over the next year, EPS is forecast to expand by 153.4%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 62% which brings it into quite a comfortable range.
Michael Hill International's Dividend Has Lacked Consistency
Looking back, Michael Hill International's dividend hasn't been particularly consistent. This suggests that the dividend might not be the most reliable. Since 2016, the dividend has gone from A$0.0466 total annually to A$0.035. Doing the maths, this is a decline of about 3.5% per year. A company that decreases its dividend over time generally isn't what we are looking for.
Dividend Growth Is Doubtful
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Over the past five years, it looks as though Michael Hill International's EPS has declined at around 7.2% a year. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
The Dividend Could Prove To Be Unreliable
In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The track record isn't great, and the payments are a bit high to be considered sustainable. We don't think Michael Hill International is a great stock to add to your portfolio if income is your focus.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for Michael Hill International that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield 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.
