Kuala Lumpur Kepong Berhad (KLSE:KLK) Is Increasing Its Dividend To RM0.80

Kuala Lumpur Kepong Berhad (KLSE:KLK) will increase its dividend on the 1st of March to RM0.80. This makes the dividend yield 4.6%, which is above the industry average.

Check out our latest analysis for Kuala Lumpur Kepong Berhad

Kuala Lumpur Kepong Berhad's Earnings Easily Cover the Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last dividend, Kuala Lumpur Kepong Berhad is earning enough to cover the payment, but the it makes up 549% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Over the next year, EPS is forecast to fall by 35.6%. However, if the dividend continues along recent trends, we estimate the payout ratio could reach 77%, meaning that most of the company's earnings are being paid out to shareholders.

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 RM0.60 in 2012 to the most recent annual payment of RM1.00. This implies that the company grew its distributions at a yearly rate of about 5.2% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

We Could See Kuala Lumpur Kepong Berhad's Dividend Growing

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Kuala Lumpur Kepong Berhad has impressed us by growing EPS at 7.0% per year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

Our Thoughts On Kuala Lumpur Kepong Berhad's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Kuala Lumpur Kepong Berhad is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 2 warning signs for Kuala Lumpur Kepong Berhad you should be aware of, and 1 of them can't be ignored. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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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.