Pintaras Jaya Berhad (KLSE:PTARAS) Is Reducing Its Dividend To MYR0.02

The board of Pintaras Jaya Berhad (KLSE:PTARAS) has announced that the dividend on 5th of July will be reduced by 50% from last year's MYR0.04 to MYR0.02. The yield is still above the industry average at 5.8%.

Check out our latest analysis for Pintaras Jaya Berhad

Pintaras Jaya Berhad Doesn't Earn Enough To Cover Its Payments

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Pintaras Jaya Berhad's dividend was only 17% of earnings, however it was paying out 107% of free cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

EPS is set to fall by 35.7% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could reach 100%, which could put the dividend in jeopardy if the company's earnings don't improve.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was MYR0.125 in 2013, and the most recent fiscal year payment was MYR0.10. The dividend has shrunk at around 2.2% 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.

We Could See Pintaras Jaya Berhad's Dividend Growing

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Pintaras Jaya Berhad has seen EPS rising for the last five years, at 5.6% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

Our Thoughts On Pintaras Jaya Berhad's Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 5 warning signs for Pintaras Jaya Berhad (of which 1 doesn't sit too well with us!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.