PETRONAS Dagangan Berhad's (KLSE:PETDAG) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of PETRONAS Dagangan Berhad (KLSE:PETDAG) has announced that it will be paying its dividend of MYR0.22 on the 23rd of September, an increased payment from last year's comparable dividend. Although the dividend is now higher, the yield is only 3.8%, which is below the industry average.

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Estimates Indicate PETRONAS Dagangan Berhad's Could Struggle to Maintain Dividend Payments In The Future

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Before this announcement, PETRONAS Dagangan Berhad was paying out 79% of earnings, but a comparatively small 52% of free cash flows. This leaves plenty of cash for reinvestment into the business.

EPS is set to fall by 3.5% over the next 12 months. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 104%, which is definitely a bit high to be sustainable going forward.

View our latest analysis for PETRONAS Dagangan Berhad

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut 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 implies that the company grew its distributions at a yearly rate of about 6.1% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. PETRONAS Dagangan Berhad might have put its house in order since then, but we remain cautious.

PETRONAS Dagangan Berhad's Dividend Might Lack Growth

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. We are encouraged to see that PETRONAS Dagangan Berhad has grown earnings per share at 27% per year over the past five years. However, PETRONAS Dagangan Berhad isn't reinvesting a lot back into the business, so we wonder how quickly it will be able to grow in the future.

In Summary

Overall, we always like to see the dividend being raised, but we don't think PETRONAS Dagangan Berhad will make a great income stock. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 PETRONAS Dagangan 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.