The board of Hil Industries Berhad (KLSE:HIL) has announced that it will be increasing its dividend on the 18th of August to RM0.015. The announced payment will take the dividend yield to 1.5%, which is in line with the average for the industry.
Hil Industries Berhad's Dividend Is Well Covered By Earnings
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. However, prior to this announcement, Hil Industries Berhad's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.
Over the next year, EPS is forecast to expand by 18.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 18%, which is in the range that makes us comfortable with the sustainability of the dividend.
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from RM0.027 in 2011 to the most recent annual payment of RM0.015. The dividend has shrunk at around 5.7% a year during that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.
We Could See Hil Industries Berhad's Dividend Growing
Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. We are encouraged to see that Hil Industries Berhad has grown earnings per share at 7.4% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.
In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 2 warning signs for Hil Industries 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 performing dividend stock.
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