Yahoo Finance McChip Resources (CVE:MCS) Has Announced That It Will Be Increasing Its Dividend To CA$0.06
McChip Resources Inc.'s (CVE:MCS) periodic dividend will be increasing on the 1st of February to CA$0.06, with investors receiving 50% more than last year's CA$0.04. This takes the annual payment to 4.0% of the current stock price, which is about average for the industry.
Check out our latest analysis for McChip Resources
McChip Resources' Earnings Easily Cover The Distributions
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. But before making this announcement, McChip Resources' earnings quite easily covered the dividend. The business is earning enough to make the dividend feasible, but the cash payout ratio of 90% shows that most of the cash is going back to the shareholders, which could constrain growth prospects going forward.
Looking forward, earnings per share could rise by 0.8% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 21% by next year, which is in a pretty sustainable range.
McChip Resources' Dividend Has Lacked Consistency
McChip Resources has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. Since 2014, the annual payment back then was CA$0.05, compared to the most recent full-year payment of CA$0.04. This works out to be a decline of approximately 2.4% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.
Dividend Growth May Be Hard To Achieve
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Although it's important to note that McChip Resources' earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. If McChip Resources is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.
In Summary
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While McChip Resources is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We don't think McChip Resources 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. To that end, McChip Resources has 5 warning signs (and 3 which are concerning) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection 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.
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