GFM Services Berhad (KLSE:GFM) Will Pay A Dividend Of MYR0.0025

GFM Services Berhad (KLSE:GFM) will pay a dividend of MYR0.0025 on the 24th of July. This will take the dividend yield to an attractive 3.6%, providing a nice boost to shareholder returns.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that GFM Services Berhad's stock price has increased by 76% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

See our latest analysis for GFM Services Berhad

GFM Services Berhad's Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. However, prior to this announcement, GFM Services Berhad's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

EPS is set to fall by 6.8% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could be 40%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

GFM Services Berhad's Dividend Has Lacked Consistency

Looking back, GFM Services Berhad's dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The dividend has gone from an annual total of MYR0.0145 in 2017 to the most recent total annual payment of MYR0.0154. Dividend payments have grown at less than 1% a year over this period. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Dividend Growth May Be Hard To Come By

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. GFM Services Berhad has seen earnings per share falling at 6.8% per year over the last five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

Our Thoughts On GFM Services Berhad's Dividend

In summary, while it's always good to see the dividend being raised, we don't think GFM Services Berhad's payments are rock solid. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. Overall, we don't think this company has the makings of a good income stock.

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 identified 5 warning signs for GFM Services Berhad (1 doesn't sit too well with us!) that you should be aware of before investing. 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.