Inari Amertron Berhad's (KLSE:INARI) Dividend Is Being Reduced To MYR0.014

Inari Amertron Berhad's (KLSE:INARI) dividend is being reduced by 30% to MYR0.014 per share on 10th of October, in comparison to last year's comparable payment of MYR0.02. The dividend yield of 2.5% is still a nice boost to shareholder returns, despite the cut.

Check out our latest analysis for Inari Amertron Berhad

Inari Amertron Berhad's Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, the company's dividend was higher than its profits, and made up 90% of cash flows. While the cash payout ratio isn't necessarily a cause for concern, the company is probably focusing more on returning cash to shareholders than growing the business.

Over the next year, EPS is forecast to expand by 72.3%. If the dividend continues along recent trends, we estimate the payout ratio will be 65%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

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 MYR0.0128 in 2014 to the most recent total annual payment of MYR0.077. This implies that the company grew its distributions at a yearly rate of about 20% over that duration. 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.

Inari Amertron Berhad May Have Challenges Growing The Dividend

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. Inari Amertron Berhad has impressed us by growing EPS at 5.6% per year over the past five years. Although per-share earnings are growing at a credible rate, the massive payout ratio may limit growth in the company's future dividend payments.

The Dividend Could Prove To Be Unreliable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The track record isn't great, and the payments are a bit high to be considered sustainable. We don't think Inari Amertron Berhad is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Inari Amertron Berhad that investors should take into consideration. Is Inari Amertron Berhad not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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