A-Rank Berhad's (KLSE:ARANK) Upcoming Dividend Will Be Larger Than Last Year's

A-Rank Berhad (KLSE:ARANK) will increase its dividend on the 22nd of December to RM0.022, which is 13% higher than last year. This will take the dividend yield from 3.7% to 3.7%, providing a nice boost to shareholder returns.

Check out our latest analysis for A-Rank Berhad

A-Rank Berhad's Earnings Easily Cover the Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, A-Rank Berhad's earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Unless the company can turn things around, EPS could fall by 12.7% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 46%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

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 RM0.011 in 2011 to the most recent annual payment of RM0.022. This means that it has been growing its distributions at 7.7% per annum over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. A-Rank Berhad's earnings per share has shrunk at 13% a year over the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think A-Rank Berhad's payments are rock solid. While A-Rank Berhad is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 6 warning signs for A-Rank Berhad you should be aware of, and 3 of them can't be ignored. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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.

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