Amway (Malaysia) Holdings Berhad (KLSE:AMWAY) Has Affirmed Its Dividend Of MYR0.05

Amway (Malaysia) Holdings Berhad (KLSE:AMWAY) will pay a dividend of MYR0.05 on the 18th of December. Based on this payment, the dividend yield on the company's stock will be 8.8%, which is an attractive boost to shareholder returns.

Check out our latest analysis for Amway (Malaysia) Holdings Berhad

Amway (Malaysia) Holdings Berhad's Future Dividend Projections Appear Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, Amway (Malaysia) Holdings Berhad was paying only paying out a fraction of earnings, but the payment was a massive 223% of cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

EPS is set to fall by 0.5% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 74%, which we are pretty comfortable with and we think is feasible on an earnings basis.

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 MYR0.625 in 2014 to the most recent total annual payment of MYR0.60. The dividend has shrunk at a rate of less than 1% a year over this 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 Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Amway (Malaysia) Holdings Berhad has grown earnings per share at 15% per year over the past five years. Amway (Malaysia) Holdings Berhad definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

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. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 2 warning signs for Amway (Malaysia) Holdings Berhad (of which 1 is significant!) you should know about. Is Amway (Malaysia) 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.