FGV Holdings Berhad's (KLSE:FGV) Dividend Will Be Reduced To MYR0.03

FGV Holdings Berhad's (KLSE:FGV) dividend is being reduced from last year's payment covering the same period to MYR0.03 on the 12th of April. Based on this payment, the dividend yield will be 2.1%, which is lower than the average for the industry.

View our latest analysis for FGV Holdings Berhad

FGV Holdings Berhad's Dividend Is Well Covered By Earnings

If it is predictable over a long period, even low dividend yields can be attractive. Before making this announcement, FGV Holdings Berhad's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Looking forward, earnings per share is forecast to rise by 188.7% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 35% which brings it into quite a comfortable range.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was MYR0.17 in 2014, and the most recent fiscal year payment was MYR0.03. Dividend payments have fallen sharply, down 82% over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

FGV Holdings Berhad's Dividend Might Lack Growth

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. FGV Holdings Berhad has impressed us by growing EPS at 57% per year over the past five years. Although earnings per share is up nicely FGV Holdings Berhad is paying out 106% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.

Our Thoughts On FGV Holdings Berhad's Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic 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 FGV Holdings Berhad that investors should know about before committing capital to this stock. 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.