VSTECS Berhad (KLSE:VSTECS) has announced that it will pay a dividend of RM0.042 per share on the 11th of May. Based on this payment, the dividend yield on the company's stock will be 5.0%, which is an attractive boost to shareholder returns.
VSTECS Berhad's Earnings Easily Cover the Distributions
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. VSTECS Berhad is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.
If the trend of the last few years continues, EPS will grow by 13.0% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 34%, which is in the range that makes us comfortable with the sustainability of the dividend.
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2012, the dividend has gone from RM0.027 to RM0.052. This implies that the company grew its distributions at a yearly rate of about 6.9% over that duration. 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
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. VSTECS Berhad has seen EPS rising for the last five years, at 13% per annum. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While VSTECS Berhad is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.
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 example, we've identified 3 warning signs for VSTECS Berhad (1 can't be ignored!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.
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