Petron Malaysia Refining & Marketing Bhd's (KLSE:PETRONM) dividend is being reduced from last year's payment covering the same period to MYR0.10 on the 3rd of July. This means that the dividend yield is 3.0%, which is a bit low when comparing to other companies in the industry.
Petron Malaysia Refining & Marketing Bhd's Projected Earnings Seem Likely To Cover Future Distributions
It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Before this announcement, Petron Malaysia Refining & Marketing Bhd was paying out 150% of what it was earning, and not generating any free cash flows either. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.
Looking forward, earnings per share is forecast to rise exponentially over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 41%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.
See our latest analysis for Petron Malaysia Refining & Marketing Bhd
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was MYR0.14 in 2015, and the most recent fiscal year payment was MYR0.10. Doing the maths, this is a decline of about 3.3% per year. A company that decreases its dividend over time generally isn't what we are looking for.
The Dividend Has Limited Growth Potential
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Petron Malaysia Refining & Marketing Bhd's EPS has fallen by approximately 37% per year during the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.
We're Not Big Fans Of Petron Malaysia Refining & Marketing Bhd's Dividend
In summary, it's not great to see that the dividend is being cut, but it is probably understandable given that the current payment level was quite high. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. Overall, this doesn't get us very excited from an income standpoint.