Hibiscus Petroleum Berhad's (KLSE:HIBISCS) Dividend Will Be MYR0.02

The board of Hibiscus Petroleum Berhad (KLSE:HIBISCS) has announced that it will pay a dividend of MYR0.02 per share on the 27th of January. This payment means that the dividend yield will be 5.9%, which is around the industry average.

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Hibiscus Petroleum Berhad's Payment Could Potentially Have Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable. Before this announcement, Hibiscus Petroleum Berhad was paying out 103% of what it was earning, and not generating any free cash flows either. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.

According to analysts, EPS should be several times higher next year. Assuming the dividend continues along recent trends, we estimate that the payout ratio could reach 33%, which is in a comfortable range for us.

See our latest analysis for Hibiscus Petroleum Berhad

Hibiscus Petroleum Berhad's Dividend Has Lacked Consistency

It's comforting to see that Hibiscus Petroleum Berhad has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from an annual total of MYR0.025 in 2020 to the most recent total annual payment of MYR0.085. This works out to be a compound annual growth rate (CAGR) of approximately 28% a year over that time. Hibiscus Petroleum 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.

Dividend Growth Could Be Constrained

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Hibiscus Petroleum Berhad has impressed us by growing EPS at 13% per year over the past five years. While EPS is growing at a decent rate, but future growth could be limited by the amount of earnings being paid out to shareholders.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Hibiscus Petroleum Berhad's payments, as there could be some issues with sustaining them into the future. Strong earnings growth means Hibiscus Petroleum Berhad has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We don't think Hibiscus Petroleum Berhad is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 2 warning signs for Hibiscus Petroleum Berhad (1 doesn't sit too well with us!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.