Johore Tin Berhad's (KLSE:JOHOTIN) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Johore Tin Berhad (KLSE:JOHOTIN) has announced that the dividend on 16th of July will be increased to RM0.01, which will be 43% higher than last year. This will take the dividend yield from 3.4% to 3.6%, providing a nice boost to shareholder returns.

See our latest analysis for Johore Tin Berhad

Johore Tin 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. Prior to this announcement, Johore Tin Berhad's dividend was only 40% of earnings, however it was paying out 215% of free cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Looking forward, earnings per share is forecast to rise by 7.6% over the next year. If the dividend continues on this path, the payout ratio could be 46% by next year, which we think can be pretty sustainable going forward.

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 2011, the first annual payment was RM0.013, compared to the most recent full-year payment of RM0.054. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see Johore Tin Berhad has been growing its earnings per share at 15% a year over the past five years. Johore Tin Berhad definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Johore Tin Berhad has been making. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Johore Tin Berhad that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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