Pacific & Orient Berhad (KLSE:P&O) Is Paying Out A Larger Dividend Than Last Year

Pacific & Orient Berhad (KLSE:P&O) has announced that it will be increasing its periodic dividend on the 25th of August to MYR0.018, which will be 50% higher than last year's comparable payment amount of MYR0.012. This will take the dividend yield to an attractive 8.2%, providing a nice boost to shareholder returns.

See our latest analysis for Pacific & Orient Berhad

Pacific & Orient Berhad's Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, Pacific & Orient Berhad was earning enough to cover the dividend, but it wasn't generating any free cash flows. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

If the trend of the last few years continues, EPS will grow by 30.7% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 35%, which is in the range that makes us comfortable with the sustainability of the dividend.

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. Since 2012, the dividend has gone from MYR0.0103 total annually to MYR0.086. This means that it has been growing its distributions at 24% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Pacific & Orient Berhad has grown earnings per share at 31% per year over the past five years. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Pacific & Orient Berhad could prove to be a strong dividend payer.

Our Thoughts On Pacific & Orient Berhad's Dividend

Overall, we always like to see the dividend being raised, but we don't think Pacific & Orient Berhad will make a great income stock. While Pacific & Orient Berhad is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Pacific & Orient Berhad has 3 warning signs (and 1 which is concerning) we think you should know about. Is Pacific & Orient Berhad not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.