The board of DKSH Holdings (Malaysia) Berhad (KLSE:DKSH) has announced that it will be paying its dividend of MYR0.19 on the 31st of July, an increased payment from last year's comparable dividend. This makes the dividend yield 3.7%, which is above the industry average.
DKSH Holdings (Malaysia) Berhad's Future Dividend Projections Appear Well Covered By Earnings
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, DKSH Holdings (Malaysia) Berhad's earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
The next year is set to see EPS grow by 27.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 19%, which is in the range that makes us comfortable with the sustainability of the dividend.
View our latest analysis for DKSH Holdings (Malaysia) Berhad
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was MYR0.095 in 2015, and the most recent fiscal year payment was MYR0.19. This means that it has been growing its distributions at 7.2% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. DKSH Holdings (Malaysia) Berhad might have put its house in order since then, but we remain cautious.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that DKSH Holdings (Malaysia) Berhad has grown earnings per share at 21% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.
In Summary
Overall, we always like to see the dividend being raised, but we don't think DKSH Holdings (Malaysia) Berhad will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think DKSH Holdings (Malaysia) Berhad is a great stock to add to your portfolio if income is your focus.