Cahya Mata Sarawak Berhad (KLSE:CMSB) Is Reducing Its Dividend To MYR0.02

Cahya Mata Sarawak Berhad (KLSE:CMSB) is reducing its dividend from last year's comparable payment to MYR0.02 on the 28th of June. This payment takes the dividend yield to 1.7%, which only provides a modest boost to overall returns.

View our latest analysis for Cahya Mata Sarawak Berhad

Cahya Mata Sarawak Berhad's Earnings Easily Cover The Distributions

If it is predictable over a long period, even low dividend yields can be attractive. Prior to this announcement, Cahya Mata Sarawak 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.

Over the next year, EPS is forecast to expand by 46.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 12%, which is in the range that makes us comfortable with the sustainability of the dividend.

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 MYR0.0567, compared to the most recent full-year payment of MYR0.02. This works out to be a decline of approximately 9.9% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Has Limited Growth Potential

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Over the past five years, it looks as though Cahya Mata Sarawak Berhad's EPS has declined at around 15% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

Cahya Mata Sarawak Berhad's Dividend Doesn't Look Sustainable

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. While Cahya Mata Sarawak Berhad is earning enough to cover the payments, the cash flows are lacking. 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. For example, we've picked out 2 warning signs for Cahya Mata Sarawak Berhad that investors should know about before committing capital to this stock. Is Cahya Mata Sarawak Berhad not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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