Oriental Holdings Berhad (KLSE:ORIENT) Has Announced That It Will Be Increasing Its Dividend To MYR0.20

Oriental Holdings Berhad (KLSE:ORIENT) has announced that it will be increasing its dividend from last year's comparable payment on the 13th of July to MYR0.20. This will take the dividend yield to an attractive 7.5%, providing a nice boost to shareholder returns.

Check out our latest analysis for Oriental Holdings Berhad

Oriental Holdings Berhad's Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Oriental Holdings Berhad's dividend was only 31% of earnings, however it was paying out 111% of free cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

If the trend of the last few years continues, EPS will grow by 5.4% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 52%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2013, the dividend has gone from MYR0.09 total annually to MYR0.50. This implies that the company grew its distributions at a yearly rate of about 19% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

We Could See Oriental Holdings Berhad's Dividend Growing

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Oriental Holdings Berhad has seen EPS rising for the last five years, at 5.4% per annum. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Oriental Holdings Berhad's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Oriental Holdings Berhad that investors need to be conscious of moving forward. 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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