Malayan Flour Mills Berhad (KLSE:MFLOUR) Will Pay A Dividend Of MYR0.015

The board of Malayan Flour Mills Berhad (KLSE:MFLOUR) has announced that it will pay a dividend on the 27th of September, with investors receiving MYR0.015 per share. This means the annual payment is 4.1% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Malayan Flour Mills Berhad

Malayan Flour Mills Berhad's Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before this announcement, Malayan Flour Mills Berhad was paying out 81% of earnings, but a comparatively small 15% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Looking forward, earnings per share is forecast to rise exponentially over the next year. Assuming the dividend continues along recent trends, we estimate that the payout ratio could reach 26%, which is in a comfortable range for us.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was MYR0.06 in 2014, and the most recent fiscal year payment was MYR0.03. This works out to be a decline of approximately 6.7% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth May Be Hard To Achieve

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Malayan Flour Mills Berhad has seen earnings per share falling at 4.4% per year over the last five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. 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.

An additional note is that the company has been raising capital by issuing stock equal to 21% of shares outstanding in the last 12 months. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

Our Thoughts On Malayan Flour Mills Berhad's Dividend

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 company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 4 warning signs for Malayan Flour Mills Berhad that investors need to be conscious of moving forward. Is Malayan Flour Mills Berhad not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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