Scientex Packaging (Ayer Keroh) Berhad's (KLSE:SCIPACK) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Scientex Packaging (Ayer Keroh) Berhad (KLSE:SCIPACK) has announced that it will be paying its dividend of MYR0.05 on the 14th of January, an increased payment from last year's comparable dividend. This makes the dividend yield 5.3%, which is above the industry average.

Check out our latest analysis for Scientex Packaging (Ayer Keroh) Berhad

Scientex Packaging (Ayer Keroh) Berhad's Future Dividend Projections Appear Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before this announcement, Scientex Packaging (Ayer Keroh) Berhad was paying out 81% of earnings, but a comparatively small 75% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

If the trend of the last few years continues, EPS will grow by 22.7% over the next 12 months. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 66% which brings it into quite a comfortable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the annual payment back then was MYR0.0521, compared to the most recent full-year payment of MYR0.10. This implies that the company grew its distributions at a yearly rate of about 6.7% over that duration. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

Scientex Packaging (Ayer Keroh) Berhad's Dividend Might Lack Growth

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Scientex Packaging (Ayer Keroh) Berhad has seen EPS rising for the last five years, at 23% per annum. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which Scientex Packaging (Ayer Keroh) Berhad hasn't been doing.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 3 warning signs for Scientex Packaging (Ayer Keroh) Berhad (2 can't be ignored!) that you should be aware of before investing. Is Scientex Packaging (Ayer Keroh) Berhad not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.