Globetronics Technology Bhd's (KLSE:GTRONIC) Dividend Will Be MYR0.02

Globetronics Technology Bhd (KLSE:GTRONIC) will pay a dividend of MYR0.02 on the 1st of December. Based on this payment, the dividend yield on the company's stock will be 7.1%, which is an attractive boost to shareholder returns.

Our analysis indicates that GTRONIC is potentially undervalued!

Globetronics Technology Bhd'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, Globetronics Technology Bhd was paying only paying out a fraction of earnings, but the payment was a massive 101% of cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Over the next year, EPS is forecast to expand by 4.5%. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 86% - on the higher side, but we wouldn't necessarily say this is unsustainable.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2012, the dividend has gone from MYR0.0364 total annually to MYR0.075. This means that it has been growing its distributions at 7.5% per annum over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend Has Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Globetronics Technology Bhd has seen EPS rising for the last five years, at 9.3% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

Our Thoughts On Globetronics Technology Bhd's Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While Globetronics Technology Bhd is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. Taking the debate a bit further, we've identified 1 warning sign for Globetronics Technology Bhd that investors need to be conscious of moving forward. Is Globetronics Technology Bhd 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.