Karex Berhad (KLSE:KAREX) Has Affirmed Its Dividend Of MYR0.005

The board of Karex Berhad (KLSE:KAREX) has announced that it will pay a dividend on the 24th of June, with investors receiving MYR0.005 per share. This payment means that the dividend yield will be 1.8%, which is around the industry average.

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Karex Berhad's Projected Earnings Seem Likely To Cover Future Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. Before this announcement, Karex Berhad was paying out 109% of what it was earning, and not generating any free cash flows either. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.

Looking forward, earnings per share is forecast to rise exponentially over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 19%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.

See our latest analysis for Karex Berhad

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the annual payment back then was MYR0.0111, compared to the most recent full-year payment of MYR0.015. This works out to be a compound annual growth rate (CAGR) of approximately 3.1% a year over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

Karex Berhad's Dividend Might Lack Growth

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. It's encouraging to see that Karex Berhad has been growing its earnings per share at 49% a year over the past five years. Although earnings per share is up nicely Karex Berhad is paying out 109% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Karex Berhad 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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