Able Global Berhad's (KLSE:ABLEGLOB) dividend is being reduced to RM0.01 on the 31st of December. The dividend yield will be in the average range for the industry at 2.8%.
Able Global Berhad's Earnings Easily Cover the Distributions
Unless the payments are sustainable, the dividend yield doesn't mean too much. However, based ont he last payment, Able Global Berhad was earning enough to cover the dividend pretty comfortably. However, with more than 75% of free cash flow being paid out to shareholders, future growth could potentially be constrained.
Over the next year, EPS is forecast to expand by 34.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 33% by next year, which is in a pretty sustainable range.
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 2011, the dividend has gone from RM0.013 to RM0.054. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. Able Global Berhad has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
Dividend Growth Is Doubtful
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Over the past five years, it looks as though Able Global Berhad's EPS has declined at around 8.9% 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. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. While Able Global Berhad is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We would be a touch cautious of relying on this stock primarily for the dividend income.
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. For example, we've picked out 1 warning sign for Able Global Berhad that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.
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