Is Lingkaran Trans Kota Holdings Berhad (KLSE:LITRAK) A Good Fit For Your Dividend Portfolio?

Is Lingkaran Trans Kota Holdings Berhad (KLSE:LITRAK) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. Yet sometimes, investors buy a popular dividend stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.

A high yield and a long history of paying dividends is an appealing combination for Lingkaran Trans Kota Holdings Berhad. We'd guess that plenty of investors have purchased it for the income. Some simple research can reduce the risk of buying Lingkaran Trans Kota Holdings Berhad for its dividend - read on to learn more.

Explore this interactive chart for our latest analysis on Lingkaran Trans Kota Holdings Berhad!

Payout ratios

Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable - hardly an ideal situation. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. Lingkaran Trans Kota Holdings Berhad paid out 49% of its profit as dividends, over the trailing twelve month period. This is a medium payout level that leaves enough capital in the business to fund opportunities that might arise, while also rewarding shareholders. One of the risks is that management reinvests the retained capital poorly instead of paying a higher dividend.

Another important check we do is to see if the free cash flow generated is sufficient to pay the dividend. Lingkaran Trans Kota Holdings Berhad paid out 94% of its free cash flow last year, which we think is concerning if cash flows do not improve. Lingkaran Trans Kota Holdings Berhad paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough free cash flow to cover the dividend. Were it to repeatedly pay dividends that were not well covered by cash flow, this could be a risk to Lingkaran Trans Kota Holdings Berhad's ability to maintain its dividend.

We update our data on Lingkaran Trans Kota Holdings Berhad every 24 hours, so you can always get our latest analysis of its financial health, here.

Dividend Volatility

One of the major risks of relying on dividend income, is the potential for a company to struggle financially and cut its dividend. Not only is your income cut, but the value of your investment declines as well - nasty. Lingkaran Trans Kota Holdings Berhad has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. This dividend has been unstable, which we define as having been cut one or more times over this time. During the past 10-year period, the first annual payment was RM0.2 in 2011, compared to RM0.2 last year. Dividends per share have grown at approximately 1.6% per year over this time. Lingkaran Trans Kota Holdings Berhad's dividend payments have fluctuated, so it hasn't grown 1.6% every year, but the CAGR is a useful rule of thumb for approximating the historical growth.

It's good to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth, anyway. We're not that enthused by this.

Dividend Growth Potential

With a relatively unstable dividend, it's even more important to evaluate if earnings per share (EPS) are growing - it's not worth taking the risk on a dividend getting cut, unless you might be rewarded with larger dividends in future. Lingkaran Trans Kota Holdings Berhad has grown its earnings per share at 6.9% per annum over the past five years. Earnings per share have been growing at a credible rate. What's more, the payout ratio is reasonable and provides some protection to the dividend, or even the potential to increase it.

Conclusion

Dividend investors should always want to know if a) a company's dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. Lingkaran Trans Kota Holdings Berhad has a low payout ratio, which we like, although it paid out virtually all of its generated cash. Unfortunately, earnings growth has also been mediocre, and the company has cut its dividend at least once in the past. In sum, we find it hard to get excited about Lingkaran Trans Kota Holdings Berhad from a dividend perspective. It's not that we think it's a bad business; just that there are other companies that perform better on these criteria.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for Lingkaran Trans Kota Holdings Berhad that investors should know about before committing capital to this stock.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.

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This article by Simply Wall St is general in nature. 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.
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