HPP Holdings Berhad's (KLSE:HPPHB) investors are due to receive a payment of MYR0.0075 per share on 30th of November. The dividend yield will be 3.4% based on this payment which is still above the industry average.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that HPP Holdings Berhad's stock price has increased by 52% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
Check out our latest analysis for HPP Holdings Berhad
HPP Holdings Berhad's Dividend Is Well Covered By Earnings
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last dividend was quite easily covered by HPP Holdings Berhad's earnings. This indicates that quite a large proportion of earnings is being invested back into the business.
Looking forward, earnings per share is forecast to rise by 92.0% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 31%, which is in the range that makes us comfortable with the sustainability of the dividend.
HPP Holdings Berhad's Dividend Has Lacked Consistency
Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. Since 2021, the dividend has gone from MYR0.02 total annually to MYR0.015. Dividend payments have fallen sharply, down 25% over that time. 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.
Dividend Growth Is Doubtful
Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Over the past five years, it looks as though HPP Holdings Berhad's EPS has declined at around 9.0% a year. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.
In Summary
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. This company is not in the top tier of income providing stocks.