The board of Malaysia Smelting Corporation Berhad (KLSE:MSC) has announced that it will pay a dividend on the 27th of June, with investors receiving MYR0.07 per share. The dividend yield will be 3.5% based on this payment which is still above the industry average.

Check out our latest analysis for Malaysia Smelting Corporation Berhad

Malaysia Smelting 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. Based on the last payment, Malaysia Smelting Corporation Berhad was quite comfortably earning enough to cover the dividend. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

The next year is set to see EPS grow by 71.9%. If the dividend continues on this path, the payout ratio could be 27% by next year, which we think can be pretty sustainable going forward.

Malaysia Smelting Corporation Berhad's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2017, the annual payment back then was MYR0.02, compared to the most recent full-year payment of MYR0.07. This implies that the company grew its distributions at a yearly rate of about 23% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Malaysia Smelting Corporation Berhad has seen EPS rising for the last five years, at 52% per annum. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Malaysia Smelting Corporation Berhad could prove to be a strong dividend payer.

We Really Like Malaysia Smelting Corporation Berhad's Dividend

Overall, we like to see the dividend staying consistent, and we think Malaysia Smelting Corporation Berhad might even raise payments in the future. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 2 warning signs for Malaysia Smelting Corporation 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.