The board of Hextar Global Berhad (KLSE:HEXTAR) has announced that it will pay a dividend on the 3rd of April, with investors receiving MYR0.02 per share. This payment means the dividend yield will be 1.5%, which is below the average for the industry.

See our latest analysis for Hextar Global Berhad

Hextar Global Berhad's Payment Has Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, Hextar Global Berhad's dividend made up quite a large proportion of earnings but only 42% of free cash flows. This leaves plenty of cash for reinvestment into the business.

The next year is set to see EPS grow by 18.5%. If the dividend continues along recent trends, we estimate the payout ratio will be 64%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Hextar Global Berhad's Dividend Has Lacked Consistency

Even in its short history, we have seen the dividend cut. Since 2020, the annual payment back then was MYR0.0448, compared to the most recent full-year payment of MYR0.03. The dividend has fallen 33% over that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Has Growth Potential

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Hextar Global Berhad has seen EPS rising for the last five years, at 6.7% 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 Hextar Global Berhad's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Hextar Global Berhad's payments, as there could be some issues with sustaining them into the future. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Hextar Global 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.