Nestlé (Malaysia) Berhad (KLSE:NESTLE) Has Affirmed Its Dividend Of MYR0.70

The board of Nestlé (Malaysia) Berhad (KLSE:NESTLE) has announced that it will pay a dividend on the 5th of October, with investors receiving MYR0.70 per share. The dividend yield is 2.0% based on this payment, which is a little bit low compared to the other companies in the industry.

Check out our latest analysis for Nestlé (Malaysia) Berhad

Nestlé (Malaysia) Berhad's Earnings Easily Cover The Distributions

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, the company was paying out 99% of what it was earning. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.

Over the next year, EPS is forecast to expand by 30.9%. If the dividend continues along recent trends, we estimate the payout ratio could reach 76%, which is on the higher side, but certainly still feasible.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was MYR1.80 in 2013, and the most recent fiscal year payment was MYR2.62. This means that it has been growing its distributions at 3.8% per annum over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

Nestlé (Malaysia) Berhad May Find It Hard To Grow The Dividend

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. Although it's important to note that Nestlé (Malaysia) Berhad's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.

Nestlé (Malaysia) Berhad's Dividend Doesn't Look Great

In summary, while it is good to see that the dividend hasn't been cut, we think that at current levels the payment isn't particularly sustainable. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. The dividend doesn't inspire confidence that it will provide solid income in the future.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. 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 Nestlé (Malaysia) Berhad (1 is a bit concerning!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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