Dancomech Holdings Berhad (KLSE:DANCO) Has Affirmed Its Dividend Of MYR0.0075

The board of Dancomech Holdings Berhad (KLSE:DANCO) has announced that it will pay a dividend of MYR0.0075 per share on the 26th of September. This means the annual payment is 4.8% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Dancomech Holdings Berhad

Dancomech Holdings Berhad's Earnings Easily Cover The Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last dividend was quite easily covered by Dancomech Holdings Berhad's earnings. This means that a large portion of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 37.6% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 33%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dancomech Holdings Berhad's Dividend Has Lacked Consistency

It's comforting to see that Dancomech Holdings Berhad has been paying a dividend for a number of years now, however it has been cut at least once in that time. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The annual payment during the last 7 years was MYR0.015 in 2016, and the most recent fiscal year payment was MYR0.02. This implies that the company grew its distributions at a yearly rate of about 4.2% over that duration. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. However, Dancomech Holdings Berhad has only grown its earnings per share at 2.3% per annum over the past five years. The company has been growing at a pretty soft 2.3% per annum, and is paying out quite a lot of its earnings to shareholders. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

Our Thoughts On Dancomech Holdings Berhad's Dividend

Overall, we think Dancomech Holdings Berhad is a solid choice as a dividend stock, even though the dividend wasn't raised this year. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 2 warning signs for Dancomech Holdings Berhad that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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