Kerjaya Prospek Group Berhad's (KLSE:KERJAYA) Dividend Will Be Reduced To MYR0.01

Kerjaya Prospek Group Berhad's (KLSE:KERJAYA) dividend is being reduced from last year's payment covering the same period to MYR0.01 on the 7th of October. This means that the annual payment will be 3.4% of the current stock price, which is in line with the average for the industry.

See our latest analysis for Kerjaya Prospek Group Berhad

Kerjaya Prospek Group Berhad's Dividend Is Well Covered By Earnings

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, Kerjaya Prospek Group Berhad's dividend was only 55% of earnings, however it was paying out 221% of free cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Looking forward, earnings per share is forecast to rise by 43.9% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 45% by next year, which is in a pretty sustainable range.

Kerjaya Prospek Group Berhad's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The annual payment during the last 9 years was MYR0.0364 in 2013, and the most recent fiscal year payment was MYR0.04. This implies that the company grew its distributions at a yearly rate of about 1.1% over that duration. 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

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. In the last five years, Kerjaya Prospek Group Berhad's earnings per share has shrunk at approximately 4.2% per annum. 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, the dividend looks like it may have been a bit high, which explains why it has now been cut. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.

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 instance, we've picked out 1 warning sign for Kerjaya Prospek Group Berhad that investors should take into consideration. Is Kerjaya Prospek Group Berhad not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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