Luxchem Corporation Berhad's (KLSE:LUXCHEM) Dividend Is Being Reduced To MYR0.006

Luxchem Corporation Berhad (KLSE:LUXCHEM) is reducing its dividend from last year's comparable payment to MYR0.006 on the 30th of August. The dividend yield of 2.5% is still a nice boost to shareholder returns, despite the cut.

Check out our latest analysis for Luxchem Corporation Berhad

Luxchem Corporation Berhad's Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. The last dividend was quite easily covered by Luxchem Corporation Berhad's earnings. This means that a large portion of its earnings are being retained to grow the business.

Unless the company can turn things around, EPS could fall by 10.0% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 71%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2013, the annual payment back then was MYR0.0142, compared to the most recent full-year payment of MYR0.012. The dividend has shrunk at around 1.7% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth Potential Is Shaky

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. Luxchem Corporation Berhad's EPS has fallen by approximately 10% per year during the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 2 warning signs for Luxchem Corporation Berhad that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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