EITA Resources Berhad (KLSE:EITA) Is Reducing Its Dividend To MYR0.01

EITA Resources Berhad's (KLSE:EITA) dividend is being reduced by 43% to MYR0.01 per share on 7th of July, in comparison to last year's comparable payment of MYR0.0175. The yield is still above the industry average at 4.7%.

See our latest analysis for EITA Resources Berhad

EITA Resources Berhad's Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, EITA Resources Berhad was paying out quite a large proportion of both earnings and cash flow, with the dividend being 102% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

Unless the company can turn things around, EPS could fall by 6.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 68%, which we consider to be quite comfortable, even though the current levels are slightly more elevated.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the annual payment back then was MYR0.015, compared to the most recent full-year payment of MYR0.0325. This implies that the company grew its distributions at a yearly rate of about 8.0% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Dividend Growth Is Doubtful

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. It's not great to see that EITA Resources Berhad's earnings per share has fallen at approximately 6.2% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

The Dividend Could Prove To Be Unreliable

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. The payments are bit high to be considered sustainable, and the track record isn't the best. This company is not in the top tier of income providing stocks.

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. For example, we've identified 4 warning signs for EITA Resources Berhad (1 can't be ignored!) that you should be aware of before investing. Is EITA Resources 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.