RCE Capital Berhad (KLSE:RCECAP) Is Increasing Its Dividend To MYR0.07

RCE Capital Berhad (KLSE:RCECAP) will increase its dividend from last year's comparable payment on the 28th of June to MYR0.07. This will take the annual payment to 4.5% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for RCE Capital Berhad

RCE Capital Berhad Doesn't Earn Enough To Cover Its Payments

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, RCE Capital Berhad was earning enough to cover the dividend, but it wasn't generating any free cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Earnings per share is forecast to rise by 5.5% over the next year. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 170% over the next year.

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 MYR0.021, compared to the most recent full-year payment of MYR0.09. This means that it has been growing its distributions at 16% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

RCE Capital Berhad Could Grow Its Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that RCE Capital Berhad has been growing its earnings per share at 6.7% a year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

Our Thoughts On RCE Capital Berhad's Dividend

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 the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, RCE Capital Berhad has 2 warning signs (and 1 which is significant) we think you should know about. Is RCE Capital Berhad not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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