Thong Guan Industries Berhad (KLSE:TGUAN) Will Pay A Dividend Of MYR0.0225

Thong Guan Industries Berhad (KLSE:TGUAN) has announced that it will pay a dividend of MYR0.0225 per share on the 18th of April. The dividend yield is 2.4% based on this payment, which is a little bit low compared to the other companies in the industry.

View our latest analysis for Thong Guan Industries Berhad

Thong Guan Industries Berhad's Payment Has Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. 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.

Over the next year, EPS is forecast to expand by 50.0%. Assuming the dividend continues along recent trends, we think the payout ratio could be 16% by next year, which is in a pretty sustainable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the annual payment back then was MYR0.03, compared to the most recent full-year payment of MYR0.055. This implies that the company grew its distributions at a yearly rate of about 6.2% 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.

We Could See Thong Guan Industries Berhad's Dividend Growing

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Thong Guan Industries Berhad has impressed us by growing EPS at 9.4% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

Our Thoughts On Thong Guan Industries Berhad's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While Thong Guan Industries Berhad is earning enough to cover the payments, the cash flows are lacking. We don't think Thong Guan Industries Berhad is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for Thong Guan Industries Berhad that investors need to be conscious of moving forward. 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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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.