Ajinomoto (Malaysia) Berhad (KLSE:AJI) Is Increasing Its Dividend To MYR0.4085

The board of Ajinomoto (Malaysia) Berhad (KLSE:AJI) has announced that the dividend on 24th of September will be increased to MYR0.4085, which will be 6.4% higher than last year's payment of MYR0.384 which covered the same period. Based on this payment, the dividend yield for the company will be 3.0%, which is fairly typical for the industry.

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Ajinomoto (Malaysia) Berhad's Future Dividend Projections Appear Well Covered By Earnings

We aren't too impressed by dividend yields unless they can be sustained over time. However, prior to this announcement, Ajinomoto (Malaysia) Berhad's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

EPS is set to fall by 3.7% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could be 51%, which we are pretty comfortable with and we think is feasible on an earnings basis.

See our latest analysis for Ajinomoto (Malaysia) Berhad

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the dividend has gone from MYR0.185 total annually to MYR0.384. This means that it has been growing its distributions at 7.6% per annum over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. In the last five years, Ajinomoto (Malaysia) Berhad's earnings per share has shrunk at approximately 3.7% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

Our Thoughts On Ajinomoto (Malaysia) Berhad's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Ajinomoto (Malaysia) Berhad's payments are rock solid. 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 would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. 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 picked out 2 warning signs for Ajinomoto (Malaysia) Berhad that investors should know about before committing capital to this stock. Is Ajinomoto (Malaysia) Berhad not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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