Bermaz Auto Berhad (KLSE:BAUTO) Is Increasing Its Dividend To MYR0.045

Bermaz Auto Berhad (KLSE:BAUTO) has announced that it will be increasing its periodic dividend on the 5th of May to MYR0.045, which will be 100% higher than last year's comparable payment amount of MYR0.0225. This will take the dividend yield to an attractive 5.7%, providing a nice boost to shareholder returns.

View our latest analysis for Bermaz Auto Berhad

Bermaz Auto Berhad's Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Bermaz Auto Berhad's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to fall by 1.9%. Assuming the dividend continues along recent trends, we believe the payout ratio could be 61%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Bermaz Auto Berhad's Dividend Has Lacked Consistency

Looking back, Bermaz Auto Berhad's dividend hasn't been particularly consistent. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The dividend has gone from an annual total of MYR0.025 in 2014 to the most recent total annual payment of MYR0.133. This means that it has been growing its distributions at 20% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Bermaz Auto Berhad has impressed us by growing EPS at 22% per year over the past five years. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.

We Really Like Bermaz Auto Berhad's Dividend

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 2 warning signs for Bermaz Auto Berhad you should be aware of, and 1 of them is a bit unpleasant. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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