Astro Malaysia Holdings Berhad (KLSE:ASTRO) Will Pay A Smaller Dividend Than Last Year

Astro Malaysia Holdings Berhad's (KLSE:ASTRO) dividend is being reduced to RM0.0075 on the 20th of July. The yield is still above the industry average at 5.4%.

See our latest analysis for Astro Malaysia Holdings Berhad

Astro Malaysia Holdings Berhad's Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Astro Malaysia Holdings Berhad's dividend made up quite a large proportion of earnings but only 53% 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.

Over the next year, EPS is forecast to expand by 13.3%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 47% which brings it into quite a comfortable range.

Astro Malaysia Holdings Berhad's Dividend Has Lacked Consistency

It's comforting to see that Astro Malaysia Holdings Berhad has been paying a dividend for a number of years now, however it has been cut at least once in that time. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2013, the first annual payment was RM0.03, compared to the most recent full-year payment of RM0.068. This works out to be a compound annual growth rate (CAGR) of approximately 9.4% a year over that time. 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.

Dividend Growth Is Doubtful

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 Astro Malaysia Holdings Berhad's earnings per share has fallen at approximately 5.9% 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. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Our Thoughts On Astro Malaysia Holdings Berhad's Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think Astro Malaysia Holdings 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 2 warning signs for Astro Malaysia Holdings Berhad that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield 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.