Thong Guan Industries Berhad (KLSE:TGUAN) Is Reducing Its Dividend To RM0.013

Thong Guan Industries Berhad (KLSE:TGUAN) has announced it will be reducing its dividend payable on the 18th of July to RM0.013. This means that the annual payment will be 2.8% of the current stock price, which is in line with the average for the industry.

Check out our latest analysis for Thong Guan Industries Berhad

Thong Guan Industries Berhad's Payment Has Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable. Thong Guan Industries Berhad is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

The next year is set to see EPS grow by 25.9%. If the dividend continues on this path, the payout ratio could be 22% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

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. Since 2012, the first annual payment was RM0.03, compared to the most recent full-year payment of RM0.055. This works out to be a compound annual growth rate (CAGR) of approximately 6.2% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Thong Guan Industries Berhad might have put its house in order since then, but we remain cautious.

Dividend Growth May Be Hard To Achieve

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. However, Thong Guan Industries Berhad's EPS was effectively flat over the past five years, which could stop the company from paying more every year.

The Dividend Could Prove To Be Unreliable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While Thong Guan Industries Berhad is earning enough to cover the payments, the cash flows are lacking. 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 2 warning signs for Thong Guan Industries Berhad (1 is potentially serious!) that you should be aware of before investing. Is Thong Guan Industries Berhad not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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