AME Elite Consortium Berhad's (KLSE:AME) Shareholders Will Receive A Smaller Dividend Than Last Year

AME Elite Consortium Berhad (KLSE:AME) is reducing its dividend to RM0.025 on the 7th of July. This payment takes the dividend yield to 1.5%, which only provides a modest boost to overall returns.

Check out our latest analysis for AME Elite Consortium Berhad

AME Elite Consortium Berhad's Earnings Easily Cover the Distributions

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. AME Elite Consortium Berhad is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Looking forward, earnings per share is forecast to rise by 39.5% over the next year. If the dividend continues on this path, the payout ratio could be 24% by next year, which we think can be pretty sustainable going forward.

AME Elite Consortium Berhad Is Still Building Its Track Record

The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. Since 2020, the first annual payment was RM0.02, compared to the most recent full-year payment of RM0.025. This means that it has been growing its distributions at 12% per annum over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

Dividend Growth May Be Hard To Come By

The company's investors will be pleased to have been receiving dividend income for some time. However, things aren't all that rosy. It's not great to see that AME Elite Consortium Berhad's earnings per share has fallen at approximately 6.4% per year over the past three years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

AME Elite Consortium Berhad's Dividend Doesn't Look Sustainable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. 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.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Given that earnings are not growing, the dividend does not look nearly so attractive. Businesses can change though, and we think it would make sense to see what analysts are forecasting for the company. Is AME Elite Consortium Berhad not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.