Telekom Malaysia Berhad's (KLSE:TM) Dividend Will Be Increased To MYR0.09

The board of Telekom Malaysia Berhad (KLSE:TM) has announced that it will be increasing its dividend by 29% on the 21st of October to MYR0.09, up from last year's comparable payment of MYR0.07. This takes the annual payment to 2.2% of the current stock price, which unfortunately is below what the industry is paying.

See our latest analysis for Telekom Malaysia Berhad

Telekom Malaysia Berhad's Dividend Is Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Based on the last payment, Telekom Malaysia Berhad was quite comfortably earning enough to cover the dividend. This indicates that quite a large proportion of earnings is being invested back into the business.

Looking forward, earnings per share is forecast to rise by 49.8% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 32% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was MYR0.196 in 2012, and the most recent fiscal year payment was MYR0.13. Doing the maths, this is a decline of about 4.0% 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.

Telekom Malaysia Berhad Could Grow Its Dividend

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. We are encouraged to see that Telekom Malaysia Berhad has grown earnings per share at 6.7% per year over the past five years. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.

In Summary

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

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 instance, we've picked out 2 warning signs for Telekom Malaysia Berhad that investors should take into consideration. Is Telekom Malaysia Berhad not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.