Jaycorp Berhad's (KLSE:JAYCORP) dividend is being reduced to RM0.055 on the 30th of December. However, the dividend yield of 6.4% is still a decent boost to shareholder returns.
Jaycorp Berhad's Payment Has Solid Earnings Coverage
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last dividend was quite easily covered by Jaycorp Berhad's earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.
If the trend of the last few years continues, EPS will grow by 7.6% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 49% by next year, which is in a pretty sustainable range.
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from RM0.02 in 2011 to the most recent annual payment of RM0.10. This implies that the company grew its distributions at a yearly rate of about 18% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
Jaycorp Berhad Could Grow Its Dividend
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Jaycorp Berhad has impressed us by growing EPS at 7.6% per year over the past five years. The company is paying a reasonable amount of earnings to shareholders, and is growing earnings at a decent rate so we think it could be a decent dividend stock.
Overall, we think that Jaycorp Berhad could make a reasonable income stock, even though it did cut the dividend this year. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.
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. As an example, we've identified 2 warning signs for Jaycorp Berhad that you should be aware of before investing. We have also put together a list of global stocks with a solid dividend.
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.
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