Alcom Group Berhad (KLSE:ALCOM) Will Pay A Smaller Dividend Than Last Year

Alcom Group Berhad (KLSE:ALCOM) has announced that on 25th of July, it will be paying a dividend ofMYR0.03, which a reduction from last year's comparable dividend. The yield is still above the industry average at 3.9%.

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Alcom Group Berhad's Distributions May Be Difficult To Sustain

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Even in the absence of profits, Alcom Group Berhad is paying a dividend. Along with this, it is also not generating free cash flows, which raises concerns about the sustainability of the dividend.

Over the next year, EPS could expand by 3.1% if recent trends continue. The company seems to be going down the right path, but it will probably take a little bit longer than a year to cross over into profitability. Unless this can be done in short order, the dividend might be difficult to sustain.

View our latest analysis for Alcom Group Berhad

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 dividend has gone from an annual total of MYR0.05 in 2015 to the most recent total annual payment of MYR0.03. The dividend has shrunk at around 5.0% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth May Be Hard To Achieve

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Earnings have grown at around 3.1% a year for the past five years, which isn't massive but still better than seeing them shrink. With no profits, we don't think Alcom Group Berhad has much potential to grow the dividend in the future.

The Dividend Could Prove To Be Unreliable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The payments are bit high to be considered sustainable, and the track record isn't the best. Overall, we don't think this company has the makings of a good income 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 Alcom Group Berhad you should be aware of, and 2 of them are potentially serious. 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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