Micro-Mechanics (Holdings) Ltd.'s (SGX:5DD) investors are due to receive a payment of SGD0.03 per share on 18th of November. This means the dividend yield will be fairly typical at 3.6%.

View our latest analysis for Micro-Mechanics (Holdings)

We aren't too impressed by dividend yields unless they can be sustained over time. Based on the last payment, Micro-Mechanics (Holdings)'s profits didn't cover the dividend, but the company was generating enough cash instead. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

EPS is set to fall by 9.1% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 126%, which could put the dividend under pressure if earnings don't start to improve.

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was SGD0.03 in 2014, and the most recent fiscal year payment was SGD0.06. This works out to be a compound annual growth rate (CAGR) of approximately 7.2% 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. Micro-Mechanics (Holdings) might have put its house in order since then, but we remain cautious.

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Micro-Mechanics (Holdings) has seen earnings per share falling at 9.1% per year over the last five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Micro-Mechanics (Holdings)'s payments, as there could be some issues with sustaining them into the future. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would be a touch cautious of relying on this stock primarily for the dividend income.