Spritzer Bhd (KLSE:SPRITZER) has announced that it will pay a dividend of RM0.045 per share on the 23rd of June. This means that the annual payment will be 2.4% of the current stock price, which is in line with the average for the industry.
Spritzer Bhd's Dividend Is Well Covered By Earnings
Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, Spritzer Bhd's dividend was only 38% of earnings, however it was paying out 115% of free cash flows. While the business may be attempting to set a balanced dividend policy, 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 expand by 18.0%. If the dividend continues along recent trends, we estimate the payout ratio will be 31%, which is in the range that makes us comfortable with the sustainability of the dividend.
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 first annual payment during the last 10 years was RM0.025 in 2012, and the most recent fiscal year payment was RM0.045. This works out to be a compound annual growth rate (CAGR) of approximately 6.1% a year over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.
The Dividend's Growth Prospects Are Limited
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. However, Spritzer Bhd's EPS was effectively flat over the past five years, which could stop the company from paying more every year.
Spritzer Bhd's Dividend Doesn't Look Sustainable
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Spritzer Bhd's payments, as there could be some issues with sustaining them into the future. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Spritzer Bhd is a great stock to add to your portfolio if income is your focus.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic 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 picked out 3 warning signs for Spritzer Bhd that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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