Yahoo Finance MotorCycle Holdings (ASX:MTO) Has Announced That Its Dividend Will Be Reduced To A$0.08
MotorCycle Holdings Limited's (ASX:MTO) dividend is being reduced from last year's payment covering the same period to A$0.08 on the 4th of October. The dividend yield of 9.7% is still a nice boost to shareholder returns, despite the cut.
See our latest analysis for MotorCycle Holdings
MotorCycle Holdings' Dividend Is Well Covered By Earnings
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, MotorCycle Holdings was paying only paying out a fraction of earnings, but the payment was a massive 111% of cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.
EPS is set to fall by 19.4% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could be 72%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.
MotorCycle Holdings' Dividend Has Lacked Consistency
MotorCycle Holdings has been paying dividends for a while, but the track record isn't stellar. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The annual payment during the last 6 years was A$0.15 in 2016, and the most recent fiscal year payment was A$0.24. This works out to be a compound annual growth rate (CAGR) of approximately 8.1% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. MotorCycle Holdings might have put its house in order since then, but we remain cautious.
The Dividend Looks Likely To Grow
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that MotorCycle Holdings has grown earnings per share at 10% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.
Our Thoughts On MotorCycle Holdings' Dividend
Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We don't think MotorCycle Holdings 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 2 warning signs for MotorCycle Holdings you should be aware of, and 1 of them is a bit concerning. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
