Digi.Com Berhad (KLSE:DIGI) Has Announced That It Will Be Increasing Its Dividend To RM0.039

Digi.Com Berhad's (KLSE:DIGI) dividend will be increasing on the 25th of March to RM0.039, with investors receiving 8.3% more than last year. The announced payment will take the dividend yield to 3.9%, which is in line with the average for the industry.

See our latest analysis for Digi.Com Berhad

Digi.Com Berhad's Earnings Easily Cover the Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. Before making this announcement, Digi.Com Berhad's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

EPS is set to grow by 4.2% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 89%. This is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

Digi.Com Berhad Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from RM0.16 in 2012 to the most recent annual payment of RM0.15. Payments have been decreasing at a very slow pace in this time period. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth May Be Hard To Come By

Investors could be attracted to the stock based on the quality of its payment history. However, things aren't all that rosy. Over the past five years, it looks as though Digi.Com Berhad's EPS has declined at around 6.6% a year. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Our Thoughts On Digi.Com Berhad's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Digi.Com Berhad's payments are rock solid. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. 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 identified 2 warning signs for Digi.Com Berhad (1 makes us a bit uncomfortable!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our curated list 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.