MBM Resources Berhad's (KLSE:MBMR) Shareholders Will Receive A Bigger Dividend Than Last Year

MBM Resources Berhad's (KLSE:MBMR) dividend will be increasing from last year's payment of the same period to MYR0.15 on 28th of June. This makes the dividend yield 9.9%, which is above the industry average.

Check out our latest analysis for MBM Resources Berhad

MBM Resources Berhad's Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, MBM Resources Berhad was paying only paying out a fraction of earnings, but the payment was a massive 1,359% 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.

Over the next year, EPS is forecast to fall by 19.6%. If recent patterns in the dividend continue, we could see the payout ratio reaching 91% in the next 12 months, which is on the higher end of the range we would say is sustainable.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of MYR0.06 in 2014 to the most recent total annual payment of MYR0.54. This works out to be a compound annual growth rate (CAGR) of approximately 25% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

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 MBM Resources Berhad has grown earnings per share at 10% per year over the past five years. MBM Resources 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, this is probably not a great income stock, even though the dividend is being raised at the moment. While MBM Resources Berhad is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 2 warning signs for MBM Resources Berhad you should be aware of, and 1 of them doesn't sit too well with us. Is MBM Resources 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.