VSTECS Berhad's (KLSE:VSTECS) Upcoming Dividend Will Be Larger Than Last Year's

The board of VSTECS Berhad (KLSE:VSTECS) has announced that the dividend on 13th of May will be increased to MYR0.049, which will be 20% higher than last year's payment of MYR0.041 which covered the same period. Based on this payment, the dividend yield for the company will be 2.5%, which is fairly typical for the industry.

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VSTECS Berhad's Projected Earnings Seem Likely To Cover Future Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Before making this announcement, VSTECS Berhad was paying a whopping 270% as a dividend, but this only made up 35% of its overall earnings. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

Over the next year, EPS is forecast to expand by 15.7%. Assuming the dividend continues along recent trends, we think the payout ratio could be 37% by next year, which is in a pretty sustainable range.

See our latest analysis for VSTECS Berhad

Dividend Volatility

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. The dividend has gone from an annual total of MYR0.0275 in 2015 to the most recent total annual payment of MYR0.069. This works out to be a compound annual growth rate (CAGR) of approximately 9.6% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

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 19% 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

In summary, while it's always good to see the dividend being raised, we don't think VSTECS Berhad's payments are rock solid. 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.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for VSTECS Berhad that investors should know about before committing capital to this stock. Is VSTECS Berhad not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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