Far East Holdings Berhad (KLSE:FAREAST) Has Announced A Dividend Of MYR0.06

Far East Holdings Berhad's (KLSE:FAREAST) investors are due to receive a payment of MYR0.06 per share on 5th of July. However, the dividend yield of 3.1% still remains in a typical range for the industry.

See our latest analysis for Far East Holdings Berhad

Far East Holdings Berhad's Payment Has Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, Far East Holdings Berhad's dividend was only 66% of earnings, however it was paying out 107% of free cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

If the trend of the last few years continues, EPS will grow by 14.8% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 63% by next year, which is in a pretty sustainable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the annual payment back then was MYR0.0655, compared to the most recent full-year payment of MYR0.11. This means that it has been growing its distributions at 5.3% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Far East Holdings Berhad might have put its house in order since then, but we remain cautious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Far East Holdings Berhad has impressed us by growing EPS at 15% per year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

Our Thoughts On Far East Holdings Berhad's Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While Far East Holdings Berhad is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 2 warning signs for Far East Holdings Berhad that investors should take into consideration. Is Far East Holdings Berhad not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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