Batu Kawan Berhad (KLSE:BKAWAN) will pay a dividend of MYR0.90 on the 2nd of March. This payment means that the dividend yield will be 5.3%, which is around the industry average.

View our latest analysis for Batu Kawan Berhad

Batu Kawan Berhad's Earnings Easily Cover The Distributions

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. However, prior to this announcement, Batu Kawan Berhad's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

If the trend of the last few years continues, EPS will grow by 15.5% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 35% by next year, which is in a pretty sustainable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the dividend has gone from MYR0.95 total annually to MYR1.10. This implies that the company grew its distributions at a yearly rate of about 1.5% over that duration. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Batu Kawan Berhad has grown earnings per share at 16% per year over the past five years. Batu Kawan Berhad definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Batu Kawan Berhad Looks Like A Great Dividend Stock

Overall, we think that this is a great income investment, and we think that maintaining the dividend this year may have been a conservative choice. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.

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 Batu Kawan Berhad that investors should know about before committing capital to this stock. Is Batu Kawan Berhad not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.