Negri Sembilan Oil Palms Berhad (KLSE:NSOP) Will Pay A Smaller Dividend Than Last Year

Negri Sembilan Oil Palms Berhad's (KLSE:NSOP) dividend is being reduced from last year's payment covering the same period to MYR0.02 on the 30th of June. Despite the cut, the dividend yield of 4.4% will still be comparable to other companies in the industry.

See our latest analysis for Negri Sembilan Oil Palms Berhad

Negri Sembilan Oil Palms Berhad's Earnings Easily Cover The Distributions

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. However, prior to this announcement, Negri Sembilan Oil Palms Berhad's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

If the trend of the last few years continues, EPS will grow by 28.1% over the next 12 months. If the dividend continues on this path, the payout ratio could be 21% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was MYR0.24 in 2013, and the most recent fiscal year payment was MYR0.15. Doing the maths, this is a decline of about 4.6% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Negri Sembilan Oil Palms Berhad has grown earnings per share at 28% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

We Really Like Negri Sembilan Oil Palms Berhad's Dividend

It is generally not great to see the dividend being cut, but we don't think this should happen much if at all in the future given that Negri Sembilan Oil Palms Berhad has the makings of a solid income stock moving forward. The cut will allow the company to continue paying out the dividend without putting the balance sheet under pressure, which means that it could remain sustainable for longer. All of these factors considered, we think this has solid potential as a dividend stock.

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. Just as an example, we've come across 4 warning signs for Negri Sembilan Oil Palms Berhad you should be aware of, and 1 of them shouldn't be ignored. 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.