Dominant Enterprise Berhad (KLSE:DOMINAN) Has Announced A Dividend Of MYR0.01

The board of Dominant Enterprise Berhad (KLSE:DOMINAN) has announced that it will pay a dividend of MYR0.01 per share on the 26th of October. This payment means the dividend yield will be 3.9%, which is below the average for the industry.

View our latest analysis for Dominant Enterprise Berhad

Dominant Enterprise Berhad's Payment Has Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, Dominant Enterprise Berhad's dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

Unless the company can turn things around, EPS could fall by 18.0% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 55%, which is definitely feasible to continue.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of MYR0.0417 in 2013 to the most recent total annual payment of MYR0.03. Doing the maths, this is a decline of about 3.2% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Over the past five years, it looks as though Dominant Enterprise Berhad's EPS has declined at around 18% a year. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Dominant Enterprise Berhad has 5 warning signs (and 2 which are concerning) we think you should know about. 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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