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

Kuala Lumpur Kepong Berhad (KLSE:KLK) has announced that it will be increasing its dividend on the 1st of March to RM0.80. This will take the dividend yield from 4.6% to 4.6%, providing a nice boost to shareholder returns.

Check out our latest analysis for Kuala Lumpur Kepong Berhad

Kuala Lumpur Kepong Berhad's Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. The last payment was quite easily covered by earnings, but it made 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 34.0%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 75%, which is definitely on the higher side.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from RM0.60 in 2012 to the most recent annual payment of RM1.00. This means that it has been growing its distributions at 5.2% 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. Kuala Lumpur Kepong Berhad might have put its house in order since then, but we remain cautious.

We Could See Kuala Lumpur Kepong Berhad's Dividend Growing

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Kuala Lumpur Kepong Berhad has grown earnings per share at 7.0% per year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

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. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 2 warning signs for Kuala Lumpur Kepong Berhad (1 is potentially serious!) that you should be aware of before investing. 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.