Cahya Mata Sarawak Berhad (KLSE:CMSB) has announced that it will be increasing its dividend from last year's comparable payment on the 28th of June to MYR0.03. Based on this payment, the dividend yield for the company will be 2.7%, which is fairly typical for the industry.
Cahya Mata Sarawak Berhad's Earnings Easily Cover The Distributions
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Cahya Mata Sarawak Berhad is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. 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 fall by 19.8%. If the dividend continues along recent trends, we estimate the payout ratio could be 14%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.
The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2013, the annual payment back then was MYR0.0333, compared to the most recent full-year payment of MYR0.03. This works out to be a decline of approximately 1.0% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.
The Dividend's Growth Prospects Are Limited
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 per share has been crawling upwards at 3.1% per year. While EPS growth is quite low, Cahya Mata Sarawak Berhad has the option to increase the payout ratio to return more cash to shareholders.
Our Thoughts On Cahya Mata Sarawak Berhad's Dividend
In summary, while it's always good to see the dividend being raised, we don't think Cahya Mata Sarawak Berhad's payments are rock solid. While Cahya Mata Sarawak Berhad is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. 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. 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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Cahya Mata Sarawak Berhad
Cahya Mata Sarawak Berhad, an investment holding company, engages in the manufacture and trading of cement and construction materials, construction, road maintenance, township, and property and infrastructure development businesses in Malaysia.
Undervalued with adequate balance sheet.