LB Aluminium Berhad (KLSE:LBALUM) Has Announced A Dividend Of MYR0.025

The board of LB Aluminium Berhad (KLSE:LBALUM) has announced that it will pay a dividend on the 16th of October, with investors receiving MYR0.025 per share. The dividend yield will be 5.3% based on this payment which is still above the industry average.

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LB Aluminium Berhad's Projected Earnings Seem Likely To Cover Future Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, LB Aluminium Berhad was paying only paying out a fraction of earnings, but the payment was a massive 188% of cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

Over the next year, EPS could expand by 56.7% if recent trends continue. If the dividend continues on this path, the payout ratio could be 21% by next year, which we think can be pretty sustainable going forward.

View our latest analysis for LB Aluminium Berhad

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was MYR0.0114 in 2015, and the most recent fiscal year payment was MYR0.025. This works out to be a compound annual growth rate (CAGR) of approximately 8.2% a year over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that LB Aluminium Berhad has been growing its earnings per share at 57% a year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

Our Thoughts On LB Aluminium Berhad's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about LB Aluminium Berhad's payments, as there could be some issues with sustaining them into the future. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. For example, we've identified 3 warning signs for LB Aluminium Berhad (1 is concerning!) that you should be aware of before investing. 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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