Glomac Berhad (KLSE:GLOMAC) Is Increasing Its Dividend To MYR0.015

Glomac Berhad (KLSE:GLOMAC) has announced that it will be increasing its dividend from last year's comparable payment on the 29th of December to MYR0.015. This will take the annual payment to 5.0% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for Glomac Berhad

Glomac Berhad's Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Glomac Berhad's dividend was only 32% of earnings, however it was paying out 116% of free cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

Looking forward, earnings per share is forecast to rise by 15.7% over the next year. If the dividend continues on this path, the payout ratio could be 20% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of MYR0.05 in 2012 to the most recent total annual payment of MYR0.015. The dividend has fallen 70% over that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend Has Limited Growth Potential

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Glomac Berhad's EPS has fallen by approximately 19% per year during the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

Glomac Berhad's Dividend Doesn't Look Sustainable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. For example, we've picked out 2 warning signs for Glomac Berhad that investors should know about before committing capital to this stock. Is Glomac Berhad not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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