Magni-Tech Industries Berhad (KLSE:MAGNI) Will Pay A Dividend Of MYR0.035

Magni-Tech Industries Berhad's (KLSE:MAGNI) investors are due to receive a payment of MYR0.035 per share on 15th of October. However, the dividend yield of 6.8% is still a decent boost to shareholder returns.

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Estimates Indicate Magni-Tech Industries Berhad's Could Struggle to Maintain Dividend Payments In The Future

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Magni-Tech Industries Berhad was earning enough to cover the dividend, but it wasn't generating any free cash flows. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

The next 12 months is set to see EPS grow by 13.3%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 111%, which probably can't continue without putting some pressure on the balance sheet.

Check out our latest analysis for Magni-Tech Industries Berhad

Dividend Volatility

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 an annual total of MYR0.0325 in 2015 to the most recent total annual payment of MYR0.148. This works out to be a compound annual growth rate (CAGR) of approximately 16% a year over that time. 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.

The Dividend's Growth Prospects Are Limited

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. Magni-Tech Industries Berhad hasn't seen much change in its earnings per share over the last five years. Magni-Tech Industries Berhad is struggling to find viable investments, so it is returning more to shareholders. This isn't necessarily bad, but we wouldn't expect rapid dividend growth 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 Magni-Tech Industries Berhad is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Magni-Tech Industries Berhad has 2 warning signs (and 1 which shouldn't be ignored) we think 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.