Maxis Berhad's (KLSE:MAXIS) Dividend Will Be Reduced To MYR0.04

Maxis Berhad (KLSE:MAXIS) is reducing its dividend to MYR0.04 on the 28th of Junewhich is 20% less than last year's comparable payment of MYR0.05. The dividend yield will be in the average range for the industry at 4.6%.

Check out our latest analysis for Maxis Berhad

Maxis Berhad's Dividend Is Well Covered By Earnings

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Before making this announcement, the company's dividend was much higher than its earnings. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

Over the next year, EPS is forecast to expand by 33.5%. If recent patterns in the dividend continues, the payout ratio in 12 months could be 90% which is a bit high but can definitely be sustainable.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the dividend has gone from MYR0.40 total annually to MYR0.20. Doing the maths, this is a decline of about 6.7% per year. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Has Limited Growth Potential

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Maxis Berhad's EPS has fallen by approximately 12% per year during the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. 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.

We're Not Big Fans Of Maxis Berhad's Dividend

To sum up, we don't like when dividends are cut, but in this case the dividend may have been too high to begin with. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. Overall, the dividend is not reliable enough to make this a good income stock.

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. To that end, Maxis Berhad has 2 warning signs (and 1 which is a bit concerning) we think you should know about. Is Maxis Berhad not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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