Heineken Malaysia Berhad (KLSE:HEIM) Has Announced That It Will Be Increasing Its Dividend To MYR0.98

Heineken Malaysia Berhad's (KLSE:HEIM) dividend will be increasing from last year's payment of the same period to MYR0.98 on 20th of July. This makes the dividend yield 5.1%, which is above the industry average.

See 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, the company's dividend was much higher than its earnings. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.

EPS is set to grow by 14.7% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 92% - on the higher side, but we wouldn't necessarily say this is unsustainable.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was MYR0.65 in 2013, and the most recent fiscal year payment was MYR1.38. 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.

Heineken Malaysia Berhad May Have Challenges Growing The Dividend

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. It's encouraging to see that Heineken Malaysia Berhad has been growing its earnings per share at 8.7% a year over the past five years. However, the payout ratio is very high, not leaving much room for growth of the dividend in the future.

Heineken Malaysia Berhad's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Heineken Malaysia Berhad's payments are rock solid. Strong earnings growth means Heineken Malaysia Berhad has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Heineken Malaysia Berhad that investors need to be conscious of moving forward. 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.