Is Kerjaya Prospek Group Berhad (KLSE:KERJAYA) An Attractive Dividend Stock?

Could Kerjaya Prospek Group Berhad (KLSE:KERJAYA) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. On the other hand, investors have been known to buy a stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.

With a 2.2% yield and a seven-year payment history, investors probably think Kerjaya Prospek Group Berhad looks like a reliable dividend stock. A low yield is generally a turn-off, but if the prospects for earnings growth were strong, investors might be pleasantly surprised by the long-term results. During the year, the company also conducted a buyback equivalent to around 0.5% of its market capitalisation. That said, the recent jump in the share price will make Kerjaya Prospek Group Berhad's dividend yield look smaller, even though the company prospects could be improving. Some simple analysis can reduce the risk of holding Kerjaya Prospek Group Berhad for its dividend, and we'll focus on the most important aspects below.

Explore this interactive chart for our latest analysis on Kerjaya Prospek Group Berhad!

Payout ratios

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. Looking at the data, we can see that 41% of Kerjaya Prospek Group Berhad's profits were paid out as dividends in the last 12 months. A medium payout ratio strikes a good balance between paying dividends, and keeping enough back to invest in the business. Besides, if reinvestment opportunities dry up, the company has room to increase the dividend.

In addition to comparing dividends against profits, we should inspect whether the company generated enough cash to pay its dividend. Unfortunately, while Kerjaya Prospek Group Berhad pays a dividend, it also reported negative free cash flow last year. While there may be a good reason for this, it's not ideal from a dividend perspective.

With a strong net cash balance, Kerjaya Prospek Group Berhad investors may not have much to worry about in the near term from a dividend perspective.

We update our data on Kerjaya Prospek Group Berhad every 24 hours, so you can always get our latest analysis of its financial health, here.

Dividend Volatility

From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. Looking at the data, we can see that Kerjaya Prospek Group Berhad has been paying a dividend for the past seven years. It's good to see that Kerjaya Prospek Group Berhad has been paying a dividend for a number of years. However, the dividend has been cut at least once in the past, and we're concerned that what has been cut once, could be cut again. During the past seven-year period, the first annual payment was RM0.04 in 2014, compared to RM0.03 last year. This works out to be a decline of approximately 2.7% per year over that time. Kerjaya Prospek Group Berhad's dividend hasn't shrunk linearly at 2.7% per annum, but the CAGR is a useful estimate of the historical rate of change.

A shrinking dividend over a seven-year period is not ideal, and we'd be concerned about investing in a dividend stock that lacks a solid record of growing dividends per share.

Dividend Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share (EPS) are growing. Why take the risk of a dividend getting cut, unless there's a good chance of bigger dividends in future? Kerjaya Prospek Group Berhad's EPS are effectively flat over the past five years. Over the long term, steady earnings per share is a risk as the value of the dividends can be reduced by inflation.

Conclusion

Dividend investors should always want to know if a) a company's dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. First, we like Kerjaya Prospek Group Berhad's low dividend payout ratio, although we're a bit concerned that it paid out a substantially higher percentage of its free cash flow. Earnings per share are down, and Kerjaya Prospek Group Berhad's dividend has been cut at least once in the past, which is disappointing. With this information in mind, we think Kerjaya Prospek Group Berhad may not be an ideal dividend stock.

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. As an example, we've identified 2 warning signs for Kerjaya Prospek Group Berhad that you should be aware of before investing.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.

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This article by Simply Wall St is general in nature. 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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