Magnum Berhad (KLSE:MAGNUM) Has Announced That It Will Be Increasing Its Dividend To MYR0.02

The board of Magnum Berhad (KLSE:MAGNUM) has announced that the dividend on 13th of September will be increased to MYR0.02, which will be 33% higher than last year's payment of MYR0.015 which covered the same period. This takes the annual payment to 4.3% of the current stock price, which unfortunately is below what the industry is paying.

View our latest analysis for Magnum Berhad

Magnum Berhad's Earnings Easily Cover The Distributions

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Based on the last payment, Magnum Berhad was quite comfortably earning enough to cover the dividend. This indicates that quite a large proportion of earnings is being invested back into the business.

Looking forward, earnings per share is forecast to rise by 45.8% over the next year. If the dividend continues on this path, the payout ratio could be 41% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2013, the annual payment back then was MYR0.20, compared to the most recent full-year payment of MYR0.05. The dividend has fallen 75% over that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth Potential Is Shaky

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Magnum Berhad's earnings per share has shrunk at 12% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Magnum Berhad that investors need to be conscious of moving forward. Is Magnum Berhad not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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