Should Matrix Concepts Holdings Berhad (KLSE:MATRIX) Be Part Of Your Income Portfolio?

Dividend paying stocks like Matrix Concepts Holdings Berhad (KLSE:MATRIX) tend to be popular with investors, and for good reason - some research suggests a significant amount of all stock market returns come from reinvested dividends. Yet sometimes, investors buy a stock for its dividend and lose money because the share price falls by more than they earned in dividend payments.

With a goodly-sized dividend yield despite a relatively short payment history, investors might be wondering if Matrix Concepts Holdings Berhad is a new dividend aristocrat in the making. It sure looks interesting on these metrics - but there's always more to the story. There are a few simple ways to reduce the risks of buying Matrix Concepts Holdings Berhad for its dividend, and we'll go through these below.

Explore this interactive chart for our latest analysis on Matrix Concepts Holdings Berhad!

Payout ratios

Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. Looking at the data, we can see that 36% of Matrix Concepts Holdings Berhad's profits were paid out as dividends in the last 12 months. This is a middling range that strikes a nice balance between paying dividends to shareholders, and retaining enough earnings to invest in future growth. Besides, if reinvestment opportunities dry up, the company has room to increase the dividend.

We also measure dividends paid against a company's levered free cash flow, to see if enough cash was generated to cover the dividend. Matrix Concepts Holdings Berhad paid out 129% of its free cash flow last year, which we think is concerning if cash flows do not improve. Matrix Concepts Holdings Berhad paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough free cash flow to cover the dividend. Were it to repeatedly pay dividends that were not well covered by cash flow, this could be a risk to Matrix Concepts Holdings Berhad's ability to maintain its dividend.

We update our data on Matrix Concepts Holdings Berhad every 24 hours, so you can always get our latest analysis of its financial health, here.

Dividend Volatility

From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. The first recorded dividend for Matrix Concepts Holdings Berhad, in the last decade, was eight years ago. It's good to see that Matrix Concepts Holdings Berhad has been paying a dividend for a number of years. However, the dividend has been cut at least once in the past, and we're concerned that what has been cut once, could be cut again. During the past eight-year period, the first annual payment was RM0.1 in 2013, compared to RM0.08 last year. The dividend has shrunk at around 5.7% a year during that period. Matrix Concepts Holdings Berhad's dividend has been cut sharply at least once, so it hasn't fallen by 5.7% every year, but this is a decent approximation of the long term change.

A shrinking dividend over a eight-year period is not ideal, and we'd be concerned about investing in a dividend stock that lacks a solid record of growing dividends per share.

Dividend Growth Potential

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS are growing. It's not great to see that Matrix Concepts Holdings Berhad's have fallen at approximately 3.3% over the past five years. A modest decline in earnings per share is not great to see, but it doesn't automatically make a dividend unsustainable. Still, we'd vastly prefer to see EPS growth when researching dividend stocks.

We'd also point out that Matrix Concepts Holdings Berhad issued a meaningful number of new shares in the past year. 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.

Conclusion

Dividend investors should always want to know if a) a company's dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. First, we like Matrix Concepts Holdings Berhad's low dividend payout ratio, although we're a bit concerned that it paid out a substantially higher percentage of its free cash flow. Earnings per share are down, and Matrix Concepts Holdings Berhad's dividend has been cut at least once in the past, which is disappointing. Overall, Matrix Concepts Holdings Berhad falls short in several key areas here. Unless the investor has strong grounds for an alternative conclusion, we find it hard to get interested in a dividend stock with these characteristics.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Matrix Concepts Holdings Berhad that investors should know about before committing capital to this stock.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.

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This article by Simply Wall St is general in nature. 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.
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