Gas Malaysia Berhad's (KLSE:GASMSIA) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Gas Malaysia Berhad (KLSE:GASMSIA) has announced that it will be increasing its dividend on the 27th of July to RM0.069. This will take the dividend yield from 5.9% to 6.4%, providing a nice boost to shareholder returns.

Check out our latest analysis for Gas Malaysia Berhad

Gas Malaysia Berhad Is Paying Out More Than It Is Earning

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before this announcement, Gas Malaysia Berhad was paying out 83% of earnings, but a comparatively small 49% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Looking forward, earnings per share is forecast to fall by 3.2% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 101%, which is definitely a bit high to be sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The first annual payment during the last 10 years was RM0.10 in 2012, and the most recent fiscal year payment was RM0.16. This implies that the company grew its distributions at a yearly rate of about 4.9% over that duration. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

We Could See Gas Malaysia Berhad's Dividend Growing

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Gas Malaysia Berhad has seen EPS rising for the last five years, at 8.6% per annum. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

Our Thoughts On Gas Malaysia Berhad's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for Gas Malaysia Berhad that investors need to be conscious of moving forward. Is Gas 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.