Magni-Tech Industries Berhad's (KLSE:MAGNI) Dividend Is Being Reduced To MYR0.03

Magni-Tech Industries Berhad's (KLSE:MAGNI) dividend is being reduced from last year's payment covering the same period to MYR0.03 on the 25th of July. The yield is still above the industry average at 7.0%.

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

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last dividend, Magni-Tech Industries Berhad is earning enough to cover the payment, but then it makes up 314% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

The next 12 months is set to see EPS grow by 17.6%. If the dividend continues on its recent course, the payout ratio in 12 months could be 105%, which is a bit high and could start applying pressure to 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 annual payment during the last 10 years was MYR0.0325 in 2015, and the most recent fiscal year payment was MYR0.148. This means that it has been growing its distributions at 16% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

Magni-Tech Industries Berhad May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings has been rising at 2.7% per annum over the last five years, which admittedly is a bit slow. Growth of 2.7% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This could mean the dividend doesn't have the growth potential we look for going into the future.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 2 warning signs for Magni-Tech Industries Berhad you should be aware of, and 1 of them doesn't sit too well with us. Is Magni-Tech 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.