Paramount Corporation Berhad (KLSE:PARAMON) Will Pay A Larger Dividend Than Last Year At MYR0.03

The board of Paramount Corporation Berhad (KLSE:PARAMON) has announced that it will be paying its dividend of MYR0.03 on the 21st of September, an increased payment from last year's comparable dividend. This takes the dividend yield to 7.3%, which shareholders will be pleased with.

See our latest analysis for Paramount Corporation Berhad

Paramount Corporation Berhad Doesn't Earn Enough To Cover Its Payments

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Paramount Corporation Berhad's dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Earnings per share is forecast to rise by 15.4% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 119%, which probably can't continue without putting some pressure on the balance sheet.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of MYR0.0571 in 2013 to the most recent total annual payment of MYR0.07. This works out to be a compound annual growth rate (CAGR) of approximately 2.1% a year over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Dividend Growth Potential Is Shaky

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Paramount Corporation Berhad's earnings per share has shrunk at 13% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

Our Thoughts On Paramount Corporation Berhad's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Paramount Corporation Berhad has 2 warning signs (and 1 which can't be ignored) we think you should know about. Is Paramount Corporation 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.