Hextar Industries Berhad (KLSE:HEXIND) will pay a dividend of MYR0.01 on the 15th of March. This makes the dividend yield 5.3%, which will augment investor returns quite nicely.

View our latest analysis for Hextar Industries Berhad

Hextar Industries Berhad's Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, the company was paying out 131% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 33%. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

Over the next year, EPS could expand by 37.9% if the company continues along the path it has been on recently. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 85%, which is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the annual payment back then was MYR0.03, compared to the most recent full-year payment of MYR0.02. The dividend has shrunk at around 4.0% a year during that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Hextar Industries Berhad's Dividend Might Lack Growth

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Hextar Industries Berhad has seen EPS rising for the last five years, at 38% per annum. Although earnings per share is up nicely Hextar Industries Berhad is paying out 131% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.

Our Thoughts On Hextar Industries Berhad's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 2 warning signs for Hextar Industries Berhad that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield 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.