OSK Holdings Berhad's (KLSE:OSK) Dividend Will Be Increased To MYR0.03

The board of OSK Holdings Berhad (KLSE:OSK) has announced that it will be increasing its dividend by 50% on the 13th of October to MYR0.03, up from last year's comparable payment of MYR0.02. This makes the dividend yield 4.9%, which is above the industry average.

See our latest analysis for OSK Holdings Berhad

OSK Holdings Berhad's Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, OSK Holdings Berhad's earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Over the next year, EPS is forecast to expand by 6.7%. If the dividend continues on this path, the payout ratio could be 28% 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 2013, the annual payment back then was MYR0.0667, compared to the most recent full-year payment of MYR0.06. This works out to be a decline of approximately 1.1% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. However, OSK Holdings Berhad has only grown its earnings per share at 3.0% per annum over the past five years. While EPS growth is quite low, OSK Holdings Berhad has the option to increase the payout ratio to return more cash to shareholders.

Our Thoughts On OSK Holdings Berhad's Dividend

In summary, while it's always good to see the dividend being raised, we don't think OSK Holdings Berhad's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think OSK Holdings Berhad is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for OSK Holdings Berhad that investors should take into consideration. Is OSK Holdings 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.