Thong Guan Industries Berhad (KLSE:TGUAN) Has Announced That It Will Be Increasing Its Dividend To RM0.013

Thong Guan Industries Berhad (KLSE:TGUAN) will increase its dividend on the 19th of January to RM0.013. Even though the dividend went up, the yield is still quite low at only 1.7%.

Check out our latest analysis for Thong Guan Industries Berhad

Thong Guan Industries Berhad's Payment Has Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, Thong Guan Industries Berhad's earnings easily covered the dividend, but free cash flows were negative. 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 16.4%. If the dividend continues on this path, the payout ratio could be 19% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2011, the first annual payment was RM0.025, compared to the most recent full-year payment of RM0.06. This means that it has been growing its distributions at 9.1% per annum 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.

Thong Guan Industries Berhad May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's not great to see that Thong Guan Industries Berhad's earnings per share has fallen at approximately 4.1% per year over the past five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

Thong Guan Industries Berhad's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Thong Guan Industries Berhad's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Thong Guan Industries Berhad that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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