The board of Dialog Group Berhad (KLSE:DIALOG) has announced that it will pay a dividend on the 29th of June, with investors receiving RM0.012 per share. The dividend yield is 1.1% based on this payment, which is a little bit low compared to the other companies in the industry.
Dialog Group Berhad's Earnings Easily Cover the Distributions
Even a low dividend yield can be attractive if it is sustained for years on end. Based on the last payment, Dialog Group Berhad was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.
The next year is set to see EPS grow by 8.6%. If the dividend continues on this path, the payout ratio could be 32% by next year, which we think can be pretty sustainable going forward.
The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from RM0.014 in 2011 to the most recent annual payment of RM0.031. This works out to be a compound annual growth rate (CAGR) of approximately 8.4% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Dialog Group Berhad has seen EPS rising for the last five years, at 13% per annum. Dialog Group Berhad definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Dialog Group Berhad that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.
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