BP Plastics Holding Bhd (KLSE:BPPLAS) Has Announced A Dividend Of MYR0.015

BP Plastics Holding Bhd. (KLSE:BPPLAS) will pay a dividend of MYR0.015 on the 27th of December. This makes the dividend yield 4.9%, which will augment investor returns quite nicely.

View our latest analysis for BP Plastics Holding Bhd

BP Plastics Holding Bhd's Future Dividend Projections Appear Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, BP Plastics Holding Bhd's dividend was only 63% of earnings, however it was paying out 101% of free cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Over the next year, EPS is forecast to expand by 79.9%. If the dividend continues on this path, the payout ratio could be 36% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the annual payment back then was MYR0.04, compared to the most recent full-year payment of MYR0.06. This implies that the company grew its distributions at a yearly rate of about 4.1% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

BP Plastics Holding Bhd May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings have grown at around 4.8% a year for the past five years, which isn't massive but still better than seeing them shrink. The company has been growing at a pretty soft 4.8% per annum, and is paying out quite a lot of its earnings to shareholders. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

Our Thoughts On BP Plastics Holding Bhd's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for BP Plastics Holding Bhd that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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