The board of Zhulian Corporation Berhad (KLSE:ZHULIAN) has announced that it will pay a dividend of RM0.03 per share on the 1st of September. This makes the dividend yield 8.9%, which will augment investor returns quite nicely.
Zhulian Corporation Berhad Is Paying Out More Than It Is Earning
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, the company was paying out 116% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 57%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
EPS is set to grow by 1.4% over the next year if recent trends continue. If the dividend continues on its recent course, the payout ratio in 12 months could be 172%, which is a bit high and could start applying pressure to the balance sheet.
The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2011, the dividend has gone from RM0.12 to RM0.17. This implies that the company grew its distributions at a yearly rate of about 3.5% over that duration. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.
Zhulian Corporation 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. Zhulian Corporation Berhad hasn't seen much change in its earnings per share over the last five years. The company is paying out a lot of its profits, even though it is growing those profits pretty slowly. As they say in finance, 'past performance is not indicative of future performance', but we are not confident a company with limited earnings growth and a high payout ratio will be a star dividend-payer over the next decade.
Our Thoughts On Zhulian Corporation Berhad's Dividend
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think Zhulian Corporation Berhad is a great stock to add to your portfolio if income is your focus.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Zhulian Corporation Berhad that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.
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