MOIL Limited (NSE: MOIL) will increase its dividend on October 29 to 4.90. This brings the dividend yield from 4.6% to 4.6%, which shareholders will be delighted with.
See our latest analysis for MOIL
MOIL’s income easily covers distributions
A high dividend yield for a few years doesn’t mean much if it can’t be sustained. At the time of the last dividend payment, MOIL was paying a very large portion of what it was earning and 114% of the cash flow. Paying such a high proportion of cash flow certainly exposes the company to a dividend reduction if cash flow were to decline.
Going forward, earnings per share could increase by 14.1% over the next year if the trend of recent years continues. If the dividend continues according to recent trends, we estimate that the payout ratio will be 73%, which is within the range that puts us at ease with the sustainability of the dividend.
The history of the company’s dividends has been marked by instability, with at least one decline in the past 10 years. The first annual payment in the last 10 years was 2.50 in 2011, and the payment for the most recent year was 7.40. This works out to a compound annual growth rate (CAGR) of around 11% per year over that time period. Despite the rapid growth of the dividend over the past few years, we have also seen payouts decline in the past, which makes us cautious.
The dividend seems likely to increase
Growth in earnings per share could be a mitigating factor considering past dividend fluctuations. MOIL has impressed us by increasing EPS by 14% per year over the past five years. Past earnings growth has been decent, but unless this is one of the few companies that can grow without capital investment or additional marketing expenses, we generally expect the ratio of Higher distribution limits its prospects for future growth.
Overall, we still like to see the dividend go up, but we don’t think MOIL will be a great income security. While the low payout rate is a redemption feature, this is offset by the minimum amount of money to cover the payouts. We don’t think MOIL is a great stock to add to your portfolio if income is your goal.
Investors generally tend to favor companies with a consistent and stable dividend policy over those that operate irregularly. Meanwhile, despite the importance of dividend payments, they aren’t the only factors our readers should be aware of when valuing a business. To this end, MOIL has 2 warning signs (and 1 which is potentially serious) we think you should be aware of. If you are a dividend investor, you can also check out our curated list of high performing dividend stocks.
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