DRB-HICOM Berhad (KLSE:DRBHCOM) Will Pay A Dividend Of RM0.02

The board of DRB-HICOM Berhad (KLSE:DRBHCOM) has announced that it will pay a dividend on the 18th of July, with investors receiving RM0.02 per share. This means the annual payment will be 1.4% of the current stock price, which is lower than the industry average.

Check out our latest analysis for DRB-HICOM Berhad

DRB-HICOM Berhad's Distributions May Be Difficult To Sustain

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Even in the absence of profits, DRB-HICOM Berhad is paying a dividend. It is also not generating any free cash flow, we definitely have concerns when it comes to the sustainability of the dividend.

Over the next year, EPS could expand by 35.0% if recent trends continue. While it is good to see income moving in the right direction, it still looks like the company won't achieve profitability. Unfortunately, for the dividend to continue at current levels the company definitely needs to get there sooner rather than later.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the first annual payment was RM0.06, compared to the most recent full-year payment of RM0.02. The dividend has fallen 67% over that period. A company that decreases its dividend over time generally isn't what we are looking for.

The Company Could Face Some Challenges Growing The Dividend

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. DRB-HICOM Berhad has impressed us by growing EPS at 35% per year over the past five years. The company hasn't been turning a profit, but it running in the right direction. If profitability can be achieved soon and growth continues apace, this stock could certainly turn into a solid dividend payer.

DRB-HICOM Berhad's Dividend Doesn't Look Sustainable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about DRB-HICOM Berhad's payments, as there could be some issues with sustaining them into the future. Strong earnings growth means DRB-HICOM Berhad has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 6 analysts we track are forecasting for DRB-HICOM Berhad for free with public analyst estimates for the company. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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