RCE Capital Berhad (KLSE:RCECAP) Has Announced That It Will Be Increasing Its Dividend To RM0.07

RCE Capital Berhad's (KLSE:RCECAP) dividend will be increasing to RM0.07 on 29th of July. This makes the dividend yield 4.7%, which is above the industry average.

See our latest analysis for RCE Capital Berhad

RCE Capital Berhad's Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, RCE Capital Berhad was paying only paying out a fraction of earnings, but the payment was a massive 121% of cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

EPS is set to fall by 1.5% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could be 43%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2011, the first annual payment was RM0.047, compared to the most recent full-year payment of RM0.14. This implies that the company grew its distributions at a yearly rate of about 12% over that duration. RCE Capital 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 Looks Likely To Grow

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. It's encouraging to see RCE Capital Berhad has been growing its earnings per share at 23% a year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think RCE Capital Berhad's payments are rock solid. While RCE Capital Berhad is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 3 warning signs for RCE Capital Berhad you should be aware of, and 1 of them doesn't sit too well with us. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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