MNRB Holdings Berhad (KLSE:MNRB) will increase its dividend on the 31st of October to MYR0.0445, which is 78% higher than last year's payment from the same period of MYR0.025. This takes the annual payment to 2.1% of the current stock price, which unfortunately is below what the industry is paying.
MNRB Holdings Berhad's Earnings Easily Cover The Distributions
While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Prior to this announcement, MNRB Holdings 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 fall by 15.4% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 16%, which we are pretty comfortable with and we think is feasible on an earnings basis.
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 MYR0.213 in 2013, and the most recent fiscal year payment was MYR0.025. Dividend payments have fallen sharply, down 88% over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
Dividend Growth Is Doubtful
Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Over the past five years, it looks as though MNRB Holdings Berhad's EPS has declined at around 6.1% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.
The Dividend Could Prove To Be Unreliable
In summary, while it's always good to see the dividend being raised, we don't think MNRB Holdings Berhad's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think MNRB Holdings Berhad is a great stock to add to your portfolio if income is your focus.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 2 warning signs for MNRB Holdings Berhad (of which 1 is significant!) you should know about. 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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