Digi.Com Berhad (KLSE:DIGI) Is Paying Out Less In Dividends Than Last Year

The board of Digi.Com Berhad (KLSE:DIGI) has announced it will be reducing its dividend by 15% on the 24th of June, with shareholders receiving RM0.029. However, the dividend yield of 3.8% still remains in a typical range for the industry.

See our latest analysis for Digi.Com Berhad

Digi.Com Berhad Doesn't Earn Enough To Cover Its Payments

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, the company was paying out 99% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 66%. 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.

Over the next year, EPS is forecast to fall by 3.6%. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 95%, which could put the dividend under pressure if earnings don't start to improve.

Digi.Com Berhad Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The first annual payment during the last 10 years was RM0.17 in 2012, and the most recent fiscal year payment was RM0.15. Doing the maths, this is a decline of about 1.6% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth May Be Hard To Come By

The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately things aren't as good as they seem. Digi.Com Berhad has seen earnings per share falling at 6.7% per year over the last five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

Our Thoughts On Digi.Com Berhad's Dividend

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. As an example, we've identified 2 warning signs for Digi.Com Berhad 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.