EITA Resources Berhad's (KLSE:EITA) periodic dividend will be increasing on the 9th of July to MYR0.0125, with investors receiving 25% more than last year's MYR0.01. Even though the dividend went up, the yield is still quite low at only 2.4%.
See our latest analysis for EITA Resources Berhad
EITA Resources Berhad's Dividend Is Well Covered By Earnings
It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. EITA Resources Berhad is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.
EPS is set to fall by 2.7% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could be 43%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of MYR0.0175 in 2014 to the most recent total annual payment of MYR0.02. This works out to be a compound annual growth rate (CAGR) of approximately 1.3% a year over that time. It's encouraging 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, which makes this less attractive as an income investment.
The Dividend's Growth Prospects Are Limited
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. It's not great to see that EITA Resources Berhad's earnings per share has fallen at approximately 2.7% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.
An additional note is that the company has been raising capital by issuing stock equal to 16% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.
The Dividend Could Prove To Be Unreliable
In summary, while it's always good to see the dividend being raised, we don't think EITA Resources Berhad's payments are rock solid. While EITA Resources Berhad is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.