Stock Analysis

Ajinomoto (Malaysia) Berhad (KLSE:AJI) Is Paying Out Less In Dividends Than Last Year

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Ajinomoto (Malaysia) Berhad's (KLSE:AJI) dividend is being reduced to RM0.38 on the 22nd of October. However, the dividend yield of 2.4% still remains in a typical range for the industry.

See our latest analysis for Ajinomoto (Malaysia) Berhad

Ajinomoto (Malaysia) Berhad's Earnings Easily Cover the Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, Ajinomoto (Malaysia) Berhad's earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Over the next year, EPS is forecast to expand by 30.3%. If the dividend continues on this path, the payout ratio could be 44% by next year, which we think can be pretty sustainable going forward.

KLSE:AJI Historic Dividend August 23rd 2021

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. The dividend has gone from RM0.18 in 2011 to the most recent annual payment of RM0.38. This implies that the company grew its distributions at a yearly rate of about 7.8% over that duration. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

Ajinomoto (Malaysia) Berhad May Find It Hard To Grow The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. However, Ajinomoto (Malaysia) Berhad's EPS was effectively flat over the past five years, which could stop the company from paying more every year. Growth of 1.4% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

Our Thoughts On Ajinomoto (Malaysia) Berhad's Dividend

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 the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Ajinomoto (Malaysia) Berhad is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 2 warning signs for Ajinomoto (Malaysia) Berhad you should be aware of, and 1 of them is significant. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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