Micro-Mechanics (Holdings) Ltd (SGX: 5DD) produces parts that are needed in the assembling and testing of semiconductors. Currently, the company has a tasty dividend yield that is higher than what the market offers. In this article, let’s learn more about Micro-Mechanics’ dividend, including aspects such as its dividend yield, dividend history, and most importantly, the sustainability of its dividend.
Micro-Mechanics’ share price closed at S$1.70 on 13 November, giving a dividend yield of 5.3%, excluding any special dividend. The yield goes up to 5.9% if the special dividend declared in the fourth quarter of its financial year ended 30 June 2018 (FY2018) is included.
For perspective, the SPDR STI ETF (SGX: ES3) had a distribution yield of 3.6% on the same day. The SPDR STI ETF is an exchange-traded fund (ETF) that tracks the fundamentals of Singapore’s stock market barometer, the Straits Times Index (SGX: ^STI).
Dividend amount and payout periods
Micro-Mechanics dished out a dividend of S$0.10 per share for FY2018. The company’s annual dividend is usually split into two parts – the first is the interim dividend that is declared in the second fiscal quarter, and the other is the final dividend that is declared in the fourth fiscal quarter.
In FY2018, Micro-Mechanics’ interim and final dividend were S$0.04 per share and S$0.60 per share, respectively. Note that the fourth quarter dividend includes a special dividend of S$0.01 per share.
The following chart shows Micro-Mechanics’ dividend history (including special dividends) from FY2003 to FY2018:
Source: Micro-Mechanics FY2018 annual report
Micro-Mechanics’ dividend has grown by an impressive 18.3% per year from S$0.008 cents per share in FY2003 to S$0.10 per share in FY2018.
The company has a policy, which came into effect from FY2016, of declaring 40% or more of its yearly net profit as a dividend.
To find out if a company’s dividends are sustainable, we can compare its free cash flow to the amount in dividends that it pays out. Companies which pay less than 100% of their free cash flow have room for error, and have space for growing their dividends in the future.
The following table shows Micro-Mechanics’ free cash flow, total dividend paid, and dividend payout ratio (dividend as a percentage of net profit) since FY2014:
Source: S&P Global Market Intelligence; Micro-Mechanics annual reports; and author’s calculation
Micro-Mechanics paid out more in dividends than its free cash flow for FY2018, but in prior years, it had paid out less than 100% its free cash flow. I thus believe that Micro-Mechanics’ dividend is sustainable given its strong free cash flow generation.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Micro-Mechanics (Holdings) Ltd. Motley Fool Singapore contributor Sudhan P owns shares in Micro-Mechanics (Holdings) Ltd.