EITA Resources Berhad (KLSE:EITA) Is Increasing Its Dividend To RM0.018

EITA Resources Berhad (KLSE:EITA) has announced that it will be increasing its dividend on the 7th of July to RM0.018. This will take the dividend yield to an attractive 4.0%, providing a nice boost to shareholder returns.

Check out our latest analysis for EITA Resources Berhad

EITA Resources Berhad's Payment Has Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, EITA Resources Berhad was earning enough to cover the dividend, but free cash flows weren't positive. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Looking forward, earnings per share is forecast to rise by 28.3% over the next year. If the dividend continues on this path, the payout ratio could be 34% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from RM0.015 in 2012 to the most recent annual payment of RM0.035. This implies that the company grew its distributions at a yearly rate of about 8.8% 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. EITA Resources Berhad might have put its house in order since then, but we remain cautious.

Dividend Growth Is Doubtful

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's not great to see that EITA Resources Berhad's earnings per share has fallen at approximately 5.2% per year over the past five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

The Dividend Could Prove To Be Unreliable

Overall, we always like to see the dividend being raised, but we don't think EITA Resources Berhad will make a great income stock. While EITA Resources Berhad is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

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 EITA Resources Berhad that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.