Batu Kawan Berhad's (KLSE:BKAWAN) Dividend Will Be MYR0.20

Batu Kawan Berhad (KLSE:BKAWAN) will pay a dividend of MYR0.20 on the 1st of August. Based on this payment, the dividend yield will be 3.0%, which is fairly typical for the industry.

View our latest analysis for Batu Kawan Berhad

Batu Kawan Berhad's Payment Has Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable. Before making this announcement, Batu Kawan Berhad was paying out a fairly large proportion of earnings, and it wasn't generating positive free cash flows either. This is a pretty unsustainable practice, and could be risky if continued for the long term.

EPS is set to fall by 3.3% over the next 12 months if recent trends continue. If recent patterns in the dividend continue, we could see the payout ratio reaching 78% in the next 12 months which is on the higher end of the range we would say is sustainable.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of MYR0.55 in 2014 to the most recent total annual payment of MYR0.60. Dividend payments have grown at less than 1% a year over this period. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Over the past five years, it looks as though Batu Kawan Berhad's EPS has declined at around 3.3% a year. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.

Batu Kawan Berhad's Dividend Doesn't Look Sustainable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Batu Kawan Berhad's payments, as there could be some issues with sustaining them into the future. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. 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 3 warning signs for Batu Kawan Berhad you should be aware of, and 1 of them doesn't sit too well with us. 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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