The board of VSTECS Berhad (KLSE:VSTECS) has announced that it will pay a dividend on the 11th of May, with investors receiving RM0.042 per share. The dividend yield will be 4.5% based on this payment which is still above the industry average.
VSTECS Berhad's Earnings Easily Cover the Distributions
A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, VSTECS Berhad was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.
Looking forward, earnings per share could rise by 13.0% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 34% by next year, which is in a pretty sustainable range.
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the first annual payment was RM0.027, compared to the most recent full-year payment of RM0.052. This means that it has been growing its distributions at 6.9% 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 Looks Likely To Grow
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that VSTECS Berhad has grown earnings per share at 13% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.
Our Thoughts On VSTECS Berhad's Dividend
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. We would probably look elsewhere for an income investment.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 2 warning signs for VSTECS Berhad (1 makes us a bit uncomfortable!) that you should be aware of before investing. Is VSTECS Berhad not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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.