Rhone Ma Holdings Berhad (KLSE:RHONEMA) Is Paying Out A Dividend Of MYR0.01

Rhone Ma Holdings Berhad's (KLSE:RHONEMA) investors are due to receive a payment of MYR0.01 per share on 16th of January. This payment means that the dividend yield will be 3.0%, which is around the industry average.

Check out our latest analysis for Rhone Ma Holdings Berhad

Rhone Ma Holdings Berhad's Earnings Easily Cover The Distributions

We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, Rhone Ma Holdings Berhad's dividend was only 17% of earnings, however it was paying out 168% of free cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Over the next year, EPS is forecast to expand by 28.6%. If the dividend continues along recent trends, we estimate the payout ratio will be 20%, which is in the range that makes us comfortable with the sustainability of the dividend.

Rhone Ma Holdings Berhad's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The dividend has gone from an annual total of MYR0.0364 in 2016 to the most recent total annual payment of MYR0.02. The dividend has shrunk at around 9.5% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Rhone Ma Holdings Berhad May Find It Hard To Grow The Dividend

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Earnings has been rising at 3.3% per annum over the last five years, which admittedly is a bit slow. If Rhone Ma Holdings Berhad is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.

We should note that Rhone Ma Holdings Berhad has issued stock equal to 10% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

In Summary

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 Rhone Ma Holdings Berhad is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

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. For example, we've picked out 3 warning signs for Rhone Ma Holdings Berhad that investors should know about before committing capital to this stock. Is Rhone Ma Holdings Berhad not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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