Wellcall Holdings Berhad's (KLSE:WELLCAL) Dividend Is Being Reduced To MYR0.018

The board of Wellcall Holdings Berhad (KLSE:WELLCAL) has announced that the dividend on 20th of June will be reduced by 10% from last year's MYR0.02 to MYR0.018. However, the dividend yield of 5.9% is still a decent boost to shareholder returns.

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Wellcall Holdings Berhad's Payment Could Potentially Have Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, Wellcall Holdings Berhad was paying out quite a large proportion of both earnings and cash flow, with the dividend being 97% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

Looking forward, earnings per share is forecast to rise by 58.9% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 62% which brings it into quite a comfortable range.

See our latest analysis for Wellcall Holdings Berhad

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of MYR0.0533 in 2015 to the most recent total annual payment of MYR0.082. This means that it has been growing its distributions at 4.4% per annum 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.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings have grown at around 3.8% a year for the past five years, which isn't massive but still better than seeing them shrink. Wellcall Holdings Berhad's earnings per share has barely grown, which is not ideal - perhaps this is why the company pays out the majority of its earnings to shareholders. When a company prefers to pay out cash to its shareholders instead of reinvesting it, this can often say a lot about that company's dividend prospects.

Wellcall Holdings Berhad's Dividend Doesn't Look Sustainable

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 track record isn't great, and the payments are a bit high to be considered sustainable. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Wellcall Holdings Berhad that investors should know about before committing capital to this stock. Is Wellcall Holdings Berhad not quite the opportunity you were looking for? Why not check out our selection of top 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.