PETRONAS Dagangan Berhad (KLSE:PETDAG) Is Increasing Its Dividend To MYR0.45

PETRONAS Dagangan Berhad (KLSE:PETDAG) will increase its dividend from last year's comparable payment on the 21st of March to MYR0.45. This takes the annual payment to 4.2% of the current stock price, which unfortunately is below what the industry is paying.

View our latest analysis for PETRONAS Dagangan Berhad

PETRONAS Dagangan Berhad's Future Dividends May Potentially Be At Risk

Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, PETRONAS Dagangan Berhad's dividend made up quite a large proportion of earnings but only 62% of free cash flows. This leaves plenty of cash for reinvestment into the business.

EPS is set to fall by 0.3% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 101%, which could put the dividend under pressure if earnings don't start to improve.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the annual payment back then was MYR0.48, compared to the most recent full-year payment of MYR0.87. This works out to be a compound annual growth rate (CAGR) of approximately 6.1% a year over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

PETRONAS Dagangan Berhad Could Grow Its Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. PETRONAS Dagangan Berhad has impressed us by growing EPS at 5.5% per year over the past five years. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

Our Thoughts On PETRONAS Dagangan Berhad's Dividend

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.

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, PETRONAS Dagangan Berhad has 2 warning signs (and 1 which is a bit concerning) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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