The board of Wellcall Holdings Berhad (KLSE:WELLCAL) has announced that it will pay a dividend of RM0.014 per share on the 24th of September. The dividend yield will be 5.5% based on this payment which is still above the industry average.
Wellcall Holdings Berhad's Dividend Is Well Covered By Earnings
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Wellcall Holdings Berhad's dividend made up quite a large proportion of earnings but only 57% of free cash flows. This leaves plenty of cash for reinvestment into the business.
Over the next year, EPS is forecast to expand by 22.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 71%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.
The company has a long dividend track record, but it doesn't look great with cuts in the past. The first annual payment during the last 10 years was RM0.029 in 2011, and the most recent fiscal year payment was RM0.05. This implies that the company grew its distributions at a yearly rate of about 5.4% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Wellcall Holdings Berhad might have put its house in order since then, but we remain cautious.
Dividend Growth May Be Hard To Achieve
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Although it's important to note that Wellcall Holdings Berhad's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.
Our Thoughts On Wellcall Holdings Berhad's Dividend
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would be a touch cautious of relying on this stock primarily for the dividend income.
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. Taking the debate a bit further, we've identified 1 warning sign for Wellcall Holdings Berhad that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.
When trading stocks or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted
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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.