PETRONAS Dagangan Berhad (KLSE:PETDAG) has announced that it will be increasing its dividend on the 24th of March to RM0.26. This makes the dividend yield about the same as the industry average at 3.5%.
PETRONAS Dagangan Berhad's Earnings Easily Cover the Distributions
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, the dividend made up 131% of earnings, and the company was generating negative free cash flows. This high of a dividend payment could start to put pressure on the balance sheet in the future.
EPS is set to grow by 40.1% over the next year. If the dividend continues growing along recent trends, we estimate the payout ratio could reach 94%, which is on the higher side, but certainly still feasible.
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the dividend has gone from RM1.05 to RM0.70. Doing the maths, this is a decline of about 4.0% per year. A company that decreases its dividend over time generally isn't what we are looking for.
Dividend Growth Is Doubtful
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. In the last five years, PETRONAS Dagangan Berhad's earnings per share has shrunk at approximately 9.9% per annum. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.
We're Not Big Fans Of PETRONAS Dagangan Berhad's Dividend
In conclusion, we have some concerns about this dividend, even though it being raised is good. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. We don't think that this is a great candidate to be an income stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 2 warning signs for PETRONAS Dagangan Berhad that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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.