REDtone Digital Berhad (KLSE:REDTONE) Has Announced A Dividend Of MYR0.018

The board of REDtone Digital Berhad (KLSE:REDTONE) has announced that it will pay a dividend of MYR0.018 per share on the 22nd of November. This means the dividend yield will be fairly typical at 4.0%.

See our latest analysis for REDtone Digital Berhad

REDtone Digital Berhad's Payment Has Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable. However, prior to this announcement, REDtone Digital Berhad's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

If the trend of the last few years continues, EPS will grow by 46.6% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 24% by next year, which is in a pretty sustainable range.

REDtone Digital Berhad's Dividend Has Lacked Consistency

It's comforting to see that REDtone Digital Berhad has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. The annual payment during the last 9 years was MYR0.015 in 2013, and the most recent fiscal year payment was MYR0.018. This means that it has been growing its distributions at 2.0% per annum over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see that REDtone Digital Berhad has been growing its earnings per share at 47% a year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

REDtone Digital Berhad Looks Like A Great Dividend Stock

Overall, we like to see the dividend staying consistent, and we think REDtone Digital Berhad might even raise payments in the future. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 2 warning signs for REDtone Digital Berhad that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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