Hup Seng Industries Berhad's (KLSE:HUPSENG) Dividend Will Be MYR0.01

Hup Seng Industries Berhad (KLSE:HUPSENG) will pay a dividend of MYR0.01 on the 6th of October. This means the annual payment is 5.7% of the current stock price, which is above the average for the industry.

View our latest analysis for Hup Seng Industries Berhad

Hup Seng Industries Berhad's Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Hup Seng Industries Berhad was paying out 92% of earnings and more than 75% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but we don't think that there are necessarily signs that the dividend might be unsustainable.

The next year is set to see EPS grow by 31.5%. If the dividend continues along recent trends, we estimate the payout ratio will be 72%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of MYR0.045 in 2013 to the most recent total annual payment of MYR0.04. This works out to be a decline of approximately 1.2% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's not great to see that Hup Seng Industries Berhad's earnings per share has fallen at approximately 4.5% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

Hup Seng Industries Berhad's Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The track record isn't great, and the payments are a bit high to be considered sustainable. We would be a touch cautious of relying on this stock primarily for the dividend income.

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 Hup Seng Industries Berhad that investors need to be conscious of moving forward. Is Hup Seng Industries Berhad not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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