Heineken Malaysia Berhad (KLSE:HEIM) Is Increasing Its Dividend To MYR1.15

Heineken Malaysia Berhad (KLSE:HEIM) has announced that it will be increasing its dividend from last year's comparable payment on the 23rd of July to MYR1.15. This will take the dividend yield to an attractive 5.7%, providing a nice boost to shareholder returns.

See our latest analysis for Heineken Malaysia Berhad

Heineken Malaysia Berhad's Projections Indicate Future Payments May Be Unsustainable

A big dividend yield for a few years doesn't mean much if it can't be sustained. 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.

Over the next year, EPS is forecast to expand by 10.1%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 97%, which probably can't continue without putting some pressure on the balance sheet.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2015, the annual payment back then was MYR0.685, compared to the most recent full-year payment of MYR1.55. This means that it has been growing its distributions at 8.5% 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. Heineken Malaysia Berhad might have put its house in order since then, but we remain cautious.

There Isn't Much Room To Grow The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Heineken Malaysia Berhad has impressed us by growing EPS at 8.3% per year over the past five years. However, the company isn't reinvesting a lot back into the business, so we would expect the growth rate to slow down somewhat in the future.

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. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. 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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