Petron Malaysia Refining & Marketing Bhd (KLSE:PETRONM) Is Increasing Its Dividend To MYR0.25

Petron Malaysia Refining & Marketing Bhd (KLSE:PETRONM) has announced that it will be increasing its dividend from last year's comparable payment on the 4th of July to MYR0.25. This makes the dividend yield 5.7%, which is above the industry average.

Check out our latest analysis for Petron Malaysia Refining & Marketing Bhd

Petron Malaysia Refining & Marketing Bhd's Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, Petron Malaysia Refining & Marketing Bhd was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Looking forward, earnings per share is forecast to fall by 27.5% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 28%, which is comfortable for the company to continue in the future.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2013, the annual payment back then was MYR0.14, compared to the most recent full-year payment of MYR0.25. This implies that the company grew its distributions at a yearly rate of about 6.0% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Dividend Growth Is Doubtful

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's not great to see that Petron Malaysia Refining & Marketing Bhd's earnings per share has fallen at approximately 5.8% per year over the past five years. 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.

The Dividend Could Prove To Be Unreliable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Petron Malaysia Refining & Marketing Bhd 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 3 warning signs for Petron Malaysia Refining & Marketing Bhd you should be aware of, and 1 of them is potentially serious. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.