Dancomech Holdings Berhad (KLSE:DANCO) Has Affirmed Its Dividend Of MYR0.0175

Dancomech Holdings Berhad (KLSE:DANCO) has announced that it will pay a dividend of MYR0.0175 per share on the 9th of April. This means the annual payment is 5.1% of the current stock price, which is above the average for the industry.

See our latest analysis for Dancomech Holdings Berhad

Dancomech Holdings Berhad's Future Dividend Projections Appear Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. The last dividend was quite easily covered by Dancomech Holdings Berhad's earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

Over the next year, EPS is forecast to expand by 14.3%. If the dividend continues on this path, the payout ratio could be 44% by next year, which we think can be pretty sustainable going forward.

Dancomech Holdings Berhad's Dividend Has Lacked Consistency

Dancomech Holdings Berhad has been paying dividends for a while, but the track record isn't stellar. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The annual payment during the last 8 years was MYR0.015 in 2017, and the most recent fiscal year payment was MYR0.0225. This implies that the company grew its distributions at a yearly rate of about 5.2% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Dancomech Holdings Berhad might have put its house in order since then, but we remain cautious.

Dancomech Holdings Berhad May Find It Hard To Grow The Dividend

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. However, Dancomech Holdings Berhad has only grown its earnings per share at 2.2% per annum over the past five years. The company has been growing at a pretty soft 2.2% per annum, and is paying out quite a lot of its earnings to shareholders. This could mean the dividend doesn't have the growth potential we look for going into the future.

In Summary

Overall, a consistent dividend is a good thing, and we think that Dancomech Holdings Berhad has the ability to continue this into the future. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

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. For instance, we've picked out 2 warning signs for Dancomech Holdings Berhad that investors should take into consideration. 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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