Luxchem Corporation Berhad (KLSE:LUXCHEM) has announced that it will pay a dividend of MYR0.006 per share on the 30th of August. The dividend yield will be 4.1% based on this payment which is still above the industry average.
View our latest analysis for Luxchem Corporation Berhad
Luxchem Corporation Berhad's Earnings Easily Cover The Distributions
If the payments aren't sustainable, a high yield for a few years won't matter that much. However, Luxchem Corporation Berhad's earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.
Unless the company can turn things around, EPS could fall by 10.0% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 71%, which we are pretty comfortable with and we think is feasible on an earnings basis.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the annual payment back then was MYR0.0142, compared to the most recent full-year payment of MYR0.02. This implies that the company grew its distributions at a yearly rate of about 3.5% over that duration. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.
The Dividend Has Limited Growth Potential
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings per share has been sinking by 10% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.
Our Thoughts On Luxchem Corporation Berhad's Dividend
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. 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. 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 2 warning signs for Luxchem Corporation Berhad that investors should know about before committing capital to this stock. Is Luxchem Corporation Berhad not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.