PETRONAS Dagangan Berhad (KLSE:PETDAG) Is Increasing Its Dividend To MYR0.18

PETRONAS Dagangan Berhad's (KLSE:PETDAG) dividend will be increasing from last year's payment of the same period to MYR0.18 on 26th of September. Although the dividend is now higher, the yield is only 2.8%, which is below the industry average.

View our latest analysis for PETRONAS Dagangan Berhad

PETRONAS Dagangan Berhad's Payment Has Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. Before this announcement, PETRONAS Dagangan Berhad was paying out 79% of earnings, but a comparatively small 33% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

EPS is set to grow by 11.8% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 83% - on the higher side, but we wouldn't necessarily say this is unsustainable.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of MYR1.05 in 2013 to the most recent total annual payment of MYR0.62. Doing the maths, this is a decline of about 5.1% per year. A company that decreases its dividend over time generally isn't what we are looking for.

PETRONAS Dagangan Berhad May Find It Hard To Grow The Dividend

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Over the past five years, it looks as though PETRONAS Dagangan Berhad's EPS has declined at around 2.7% a year. 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.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We don't think PETRONAS Dagangan 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for PETRONAS Dagangan Berhad that investors should know about before committing capital to this stock. Is PETRONAS Dagangan Berhad not quite the opportunity you were looking for? Why not check out our selection of top 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.