The board of Hextar Global Berhad (KLSE:HEXTAR) has announced that it will pay a dividend on the 25th of March, with investors receiving RM0.012 per share. Including this payment, the dividend yield on the stock will be 1.3%, which is a modest boost for shareholders' returns.
Hextar Global Berhad's Earnings Easily Cover the Distributions
While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Based on the last payment, Hextar Global Berhad's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. 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.
The next year is set to see EPS grow by 88.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 58%, which is in the range that makes us comfortable with the sustainability of the dividend.
Hextar Global Berhad's Dividend Has Lacked Consistency
Even in its short history, we have seen the dividend cut. Since 2020, the dividend has gone from RM0.045 to RM0.024. The dividend has fallen 46% over that period. A company that decreases its dividend over time generally isn't what we are looking for.
Hextar Global Berhad May Find It Hard To Grow The Dividend
Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Although it's important to note that Hextar Global Berhad's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. Growth of 1.7% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This could mean the dividend doesn't have the growth potential we look for going into the future.
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Hextar Global Berhad is a great stock to add to your portfolio if income is your focus.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Hextar Global Berhad that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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