DKSH Holdings (Malaysia) Berhad's (KLSE:DKSH) dividend will be increasing on the 28th of July to RM0.11, with investors receiving 10.0% more than last year. This takes the annual payment to 2.3% of the current stock price, which is about average for the industry.
DKSH Holdings (Malaysia) Berhad's Payment Has Solid Earnings Coverage
We aren't too impressed by dividend yields unless they can be sustained over time. However, prior to this announcement, DKSH Holdings (Malaysia) Berhad's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.
EPS is set to fall by 4.2% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could be 20%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.
The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the dividend has gone from RM0.045 to RM0.10. This means that it has been growing its distributions at 8.3% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. DKSH Holdings (Malaysia) Berhad might have put its house in order since then, but we remain cautious.
The Dividend Looks Likely To Grow
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. DKSH Holdings (Malaysia) Berhad has seen EPS rising for the last five years, at 13% per annum. With a decent amount of growth and a low payout ratio, we think this bodes well for DKSH Holdings (Malaysia) Berhad's prospects of growing its dividend payments in the future.
We Really Like DKSH Holdings (Malaysia) Berhad's Dividend
Overall, a dividend increase is always good, and we think that DKSH Holdings (Malaysia) Berhad is a strong income stock thanks to its track record and growing earnings. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 2 warning signs for DKSH Holdings (Malaysia) Berhad that investors should know about before committing capital to this stock. Is DKSH Holdings (Malaysia) 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.
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