Stock Analysis

Ta Ann Holdings Berhad's (KLSE:TAANN) Shareholders Will Receive A Smaller Dividend Than Last Year

KLSE:TAANN
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Ta Ann Holdings Berhad's (KLSE:TAANN) dividend is being reduced from last year's payment covering the same period to MYR0.10 on the 20th of January. The dividend yield of 7.7% is still a nice boost to shareholder returns, despite the cut.

Our analysis indicates that TAANN is potentially undervalued!

Ta Ann Holdings Berhad Doesn't Earn Enough To Cover Its Payments

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. However, prior to this announcement, Ta Ann Holdings 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.

Looking forward, earnings per share is forecast to fall by 74.0% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 194%, which could put the dividend under pressure if earnings don't start to improve.

historic-dividend
KLSE:TAANN Historic Dividend December 4th 2022

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2012, the annual payment back then was MYR0.139, compared to the most recent full-year payment of MYR0.30. This works out to be a compound annual growth rate (CAGR) of approximately 8.0% 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

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Ta Ann Holdings Berhad has grown earnings per share at 28% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

Ta Ann Holdings Berhad Looks Like A Great Dividend Stock

Overall, we think that Ta Ann Holdings Berhad could be a great option for a dividend investment, although we would have preferred if the dividend wasn't cut this year. Reducing the amount it is paying as a dividend can protect the company's balance sheet, keeping the dividend sustainable for longer. All of these factors considered, we think this has solid potential as a dividend stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 2 warning signs for Ta Ann Holdings Berhad (of which 1 doesn't sit too well with us!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Valuation is complex, but we're helping make it simple.

Find out whether Ta Ann Holdings Berhad is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.