Westports Holdings Berhad's (KLSE:WPRTS) Dividend Will Be Reduced To MYR0.0691

Westports Holdings Berhad (KLSE:WPRTS) has announced that on 23rd of August, it will be paying a dividend ofMYR0.0691, which a reduction from last year's comparable dividend. The dividend yield of 5.3% is still a nice boost to shareholder returns, despite the cut.

View our latest analysis for Westports Holdings Berhad

Westports Holdings Berhad's Earnings Easily Cover The Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, Westports Holdings Berhad's was paying out quite a large proportion of earnings and 77% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but it is still in a reasonable range to continue with.

Over the next year, EPS is forecast to expand by 4.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 74%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Westports Holdings Berhad's Dividend Has Lacked Consistency

Looking back, Westports Holdings Berhad's dividend hasn't been particularly consistent. This makes us cautious about the consistency of the dividend over a full economic cycle. The annual payment during the last 8 years was MYR0.104 in 2014, and the most recent fiscal year payment was MYR0.186. This means that it has been growing its distributions at 7.5% per annum over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend's Growth Prospects Are Limited

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. However, Westports Holdings Berhad has only grown its earnings per share at 4.3% per annum over the past five years. There are exceptions, but limited earnings growth and a high payout ratio can signal that a company has reached maturity. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.

Our Thoughts On Westports Holdings Berhad's Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The track record isn't great, and the payments are a bit high to be considered sustainable. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Westports Holdings Berhad that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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