Magni-Tech Industries Berhad (KLSE:MAGNI) Is Paying Out A Larger Dividend Than Last Year

Magni-Tech Industries Berhad (KLSE:MAGNI) has announced that it will be increasing its dividend from last year's comparable payment on the 18th of April to MYR0.035. This takes the annual payment to 4.1% of the current stock price, which unfortunately is below what the industry is paying.

Check out our latest analysis for Magni-Tech Industries Berhad

Magni-Tech Industries Berhad's Payment Has Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. Before making this announcement, Magni-Tech Industries Berhad was paying a whopping 226% as a dividend, but this only made up 40% of its overall earnings. While the business may be attempting to set a balanced dividend policy, 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 3.5% 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 44%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the annual payment back then was MYR0.0275, compared to the most recent full-year payment of MYR0.09. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that time. Magni-Tech 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's Growth Prospects Are Limited

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. Earnings have grown at around 3.5% a year for the past five years, which isn't massive but still better than seeing them shrink. While EPS growth is quite low, Magni-Tech Industries Berhad has the option to increase the payout ratio to return more cash to shareholders.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Magni-Tech Industries Berhad's payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Magni-Tech Industries Berhad is a great stock to add to your portfolio if income is your focus.

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. Case in point: We've spotted 3 warning signs for Magni-Tech Industries Berhad (of which 2 don't sit too well with us!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.