Tong Herr Resources Berhad (KLSE:TONGHER) Is Reducing Its Dividend To MYR0.075

Tong Herr Resources Berhad (KLSE:TONGHER) is reducing its dividend from last year's comparable payment to MYR0.075 on the 14th of June. However, the dividend yield of 3.1% still remains in a typical range for the industry.

See our latest analysis for Tong Herr Resources Berhad

Tong Herr Resources Berhad Is Paying Out More Than It Is Earning

Unless the payments are sustainable, the dividend yield doesn't mean too much. Before making this announcement, Tong Herr Resources Berhad's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

Looking forward, EPS could fall by 36.1% if the company can't turn things around from the last few years. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 292%, which is definitely a bit high to be sustainable going forward.

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 2014, the annual payment back then was MYR0.05, compared to the most recent full-year payment of MYR0.075. This implies that the company grew its distributions at a yearly rate of about 4.1% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

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. Earnings per share has been sinking by 36% over the last five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

The Dividend Could Prove To Be Unreliable

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 3 warning signs for Tong Herr Resources Berhad that you should be aware of before investing. Is Tong Herr Resources Berhad not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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