Malayan Flour Mills Berhad's (KLSE:MFLOUR) Dividend Will Be Increased To RM0.02

The board of Malayan Flour Mills Berhad (KLSE:MFLOUR) has announced that it will be increasing its dividend on the 25th of March to RM0.02. This takes the annual payment to 3.2% of the current stock price, which is about average for the industry.

See our latest analysis for Malayan Flour Mills Berhad

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

We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, Malayan Flour Mills Berhad's earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Looking forward, earnings per share is forecast to rise by 93.3% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 23%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2012, the first annual payment was RM0.13, compared to the most recent full-year payment of RM0.02. Dividend payments have fallen sharply, down 85% over that time. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Has Limited Growth Potential

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Over the past five years, it looks as though Malayan Flour Mills Berhad's EPS has declined at around 25% a year. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

Malayan Flour Mills Berhad's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Malayan Flour Mills Berhad will make a great income stock. While Malayan Flour Mills Berhad is earning enough to cover the payments, the cash flows are lacking. We don't think Malayan Flour Mills Berhad is a great stock to add to your portfolio if income is your focus.

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. To that end, Malayan Flour Mills Berhad has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.