Petron Malaysia Refining & Marketing Bhd's (KLSE:PETRONM) Upcoming Dividend Will Be Larger Than Last Year's

Petron Malaysia Refining & Marketing Bhd (KLSE:PETRONM) will increase its dividend on the 8th of July to RM0.20. Based on the announced payment, the dividend yield for the company will be 3.1%, which is fairly typical for the industry.

See our latest analysis for Petron Malaysia Refining & Marketing Bhd

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

We aren't too impressed by dividend yields unless they can be sustained over time. 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, EPS could fall by 6.0% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could be 21%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the first annual payment was RM0.14, compared to the most recent full-year payment of RM0.20. This means that it has been growing its distributions at 3.6% per annum over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

Dividend Growth Is Doubtful

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. Petron Malaysia Refining & Marketing Bhd has seen earnings per share falling at 6.0% per year over the last five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

Petron Malaysia Refining & Marketing Bhd's Dividend Doesn't Look Sustainable

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 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. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 4 warning signs for Petron Malaysia Refining & Marketing Bhd you should be aware of, and 2 of them shouldn't be ignored. Is Petron Malaysia Refining & Marketing Bhd 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.