Far East Holdings Berhad's (KLSE:FAREAST) Dividend Will Be Reduced To MYR0.05

Far East Holdings Berhad (KLSE:FAREAST) is reducing its dividend from last year's comparable payment to MYR0.05 on the 10th of January. The dividend yield of 5.6% is still a nice boost to shareholder returns, despite the cut.

Check out our latest analysis for Far East Holdings Berhad

Far East Holdings Berhad Is Paying Out More Than It Is Earning

A big dividend yield for a few years doesn't mean much if it can't be sustained. At the time of the last dividend payment, Far East Holdings Berhad was paying out a very large proportion of what it was earning and 204% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

Looking forward, EPS could fall by 8.4% if the company can't turn things around from the last few years. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 130%, which is definitely a bit high to be sustainable going forward.

Dividend Volatility

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. The annual payment during the last 10 years was MYR0.0595 in 2013, and the most recent fiscal year payment was MYR0.20. This means that it has been growing its distributions at 13% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Dividend Growth May Be Hard To Come By

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. Over the past three years, it looks as though Far East Holdings Berhad's EPS has declined at around 8.4% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

The Dividend Could Prove To Be Unreliable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. 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.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 3 warning signs for Far East Holdings Berhad (1 makes us a bit uncomfortable!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield 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.