Kumpulan Perangsang Selangor Berhad (KLSE:KPS) has announced that it will pay a dividend of RM0.025 per share on the 6th of July. This means the annual payment is 5.8% of the current stock price, which is above the average for the industry.
Kumpulan Perangsang Selangor Berhad's Dividend Is Well Covered By Earnings
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last dividend was quite easily covered by Kumpulan Perangsang Selangor Berhad's earnings. This means that a large portion of its earnings are being retained to grow the business.
Looking forward, EPS could fall by 10.2% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could be 48%, which we are pretty comfortable with and we think is feasible on an earnings basis.
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The first annual payment during the last 10 years was RM0.037 in 2012, and the most recent fiscal year payment was RM0.05. This works out to be a compound annual growth rate (CAGR) of approximately 3.0% a year over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.
The Dividend Has Limited Growth Potential
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. Over the past five years, it looks as though Kumpulan Perangsang Selangor Berhad's EPS has declined at around 10% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.
Our Thoughts On Kumpulan Perangsang Selangor Berhad's Dividend
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Kumpulan Perangsang Selangor Berhad's payments, as there could be some issues with sustaining them into the future. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would be a touch cautious of relying on this stock primarily for the dividend income.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 3 warning signs for Kumpulan Perangsang Selangor Berhad that investors need to be conscious of moving forward. 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.