Luxchem Corporation Berhad (KLSE:LUXCHEM) has announced that it will pay a dividend of MYR0.01 per share on the 12th of May. This means the annual payment is 3.8% of the current stock price, which is above the average for the industry.
View our latest analysis for Luxchem Corporation Berhad
Luxchem Corporation Berhad's Earnings Easily Cover The Distributions
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last dividend was quite easily covered by Luxchem Corporation Berhad's earnings. This indicates that quite a large proportion of earnings is being invested back into the business.
EPS is set to fall by 2.6% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could be 49%, 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 MYR0.0133 in 2013 to the most recent total annual payment of MYR0.02. This means that it has been growing its distributions at 4.2% per annum over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.
The Dividend's Growth Prospects Are Limited
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's not great to see that Luxchem Corporation Berhad's earnings per share has fallen at approximately 2.6% 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.
In Summary
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Luxchem Corporation Berhad's payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think Luxchem Corporation Berhad is a great stock to add to your portfolio if income is your focus.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Luxchem Corporation Berhad that you should be aware of before investing. Is Luxchem Corporation Berhad not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.