Formosa Prosonic Industries Berhad's (KLSE:FPI) Upcoming Dividend Will Be Larger Than Last Year's

Formosa Prosonic Industries Berhad (KLSE:FPI) has announced that it will be increasing its dividend from last year's comparable payment on the 28th of April to MYR0.21. This makes the dividend yield 6.6%, which is above the industry average.

See our latest analysis for Formosa Prosonic Industries Berhad

Formosa Prosonic Industries Berhad's Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, Formosa Prosonic Industries Berhad was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.

Looking forward, earnings per share could rise by 20.3% over the next year if the trend from the last few years continues. If the dividend continues along recent trends, we estimate the payout ratio will be 50%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the annual payment back then was MYR0.04, compared to the most recent full-year payment of MYR0.21. This works out to be a compound annual growth rate (CAGR) of approximately 18% a year over that time. Formosa Prosonic Industries Berhad has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

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. Formosa Prosonic Industries Berhad has impressed us by growing EPS at 20% per year over the past five years. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.

Formosa Prosonic Industries Berhad Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for Formosa Prosonic Industries Berhad that investors should know about before committing capital to this stock. Is Formosa Prosonic Industries 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.