FACB Industries Berhad's (KLSE:FACBIND) Dividend Will Be Reduced To MYR0.017

The board of FACB Industries Incorporated Berhad (KLSE:FACBIND) has announced it will be reducing its dividend by 35% from last year's payment of MYR0.026 on the 17th of January, with shareholders receiving MYR0.017. Based on this payment, the dividend yield will be 2.8%, which is lower than the average for the industry.

View our latest analysis for FACB Industries Berhad

FACB Industries Berhad's Earnings Easily Cover The Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. Based on the last dividend, FACB Industries Berhad is earning enough to cover the payment, but then it makes up 121% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Looking forward, earnings per share could rise by 23.6% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 16% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2013, the annual payment back then was MYR0.032, compared to the most recent full-year payment of MYR0.034. Dividend payments have grown at less than 1% a year over this period. 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.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that FACB Industries Berhad has grown earnings per share at 24% per year over the past five years. FACB Industries Berhad is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. 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.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 2 warning signs for FACB Industries Berhad that investors should take into consideration. Is FACB Industries Berhad not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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