The board of Gamuda Berhad (KLSE:GAMUDA) has announced that it will pay a dividend of MYR0.06 per share on the 1st of September. This means that the annual payment will be 2.7% of the current stock price, which is in line with the average for the industry.
See our latest analysis for Gamuda Berhad
Gamuda Berhad Is Paying Out More Than It Is Earning
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Based on the last payment, Gamuda Berhad's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.
The next 12 months is set to see EPS grow by 56.6%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 110%, which probably can't continue without putting some pressure on the balance sheet.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The payments haven't really changed that much since 10 years ago. 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.
The Dividend's Growth Prospects Are Limited
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. However, Gamuda Berhad's EPS was effectively flat over the past five years, which could stop the company from paying more every year.
Gamuda Berhad's Dividend Doesn't Look Sustainable
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While Gamuda Berhad is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 2 warning signs for Gamuda Berhad that investors should know about before committing capital to this stock. 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.
About KLSE:GAMUDA
Gamuda Berhad
An investment holding company, engages in the civil engineering construction business in Malaysia, Vietnam, Australia, Singapore, Taiwan, and Qatar.
Adequate balance sheet with moderate growth potential.
