Heineken Malaysia Berhad (KLSE:HEIM) Has Announced That It Will Be Increasing Its Dividend To MYR0.40

Heineken Malaysia Berhad (KLSE:HEIM) will increase its dividend from last year's comparable payment on the 11th of November to MYR0.40. This will take the dividend yield to an attractive 4.3%, providing a nice boost to shareholder returns.

View our latest analysis for Heineken Malaysia Berhad

Heineken Malaysia Berhad's Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Heineken Malaysia Berhad was paying out quite a large proportion of both earnings and cash flow, with the dividend being 212% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

EPS is set to grow by 15.4% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 80%, which is on the higher side, but certainly still feasible.

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. Since 2012, the annual payment back then was MYR0.65, compared to the most recent full-year payment of MYR1.06. This means that it has been growing its distributions at 5.0% 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.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings has been rising at 4.0% per annum over the last five years, which admittedly is a bit slow. Heineken Malaysia Berhad's earnings per share has barely grown, which is not ideal - perhaps this is why the company pays out the majority of its earnings to shareholders. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.

The Dividend Could Prove To Be Unreliable

Overall, we always like to see the dividend being raised, but we don't think Heineken Malaysia Berhad will make a great income stock. The track record isn't great, and the payments are a bit high to be considered sustainable. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. 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 Heineken Malaysia Berhad that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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