Petron Malaysia Refining & Marketing Bhd's (KLSE:PETRONM) dividend is being reduced from last year's payment covering the same period to MYR0.23 on the 4th of July. This means that the dividend yield is 4.7%, which is a bit low when comparing to other companies in the industry.

View our latest analysis for Petron Malaysia Refining & Marketing Bhd

Petron Malaysia Refining & Marketing Bhd's Earnings Easily Cover The 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. However, prior to this announcement, Petron Malaysia Refining & Marketing Bhd's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS could expand by 3.9% if recent trends continue. If the dividend continues on this path, the payout ratio could be 22% by next year, which we think can be pretty sustainable going forward.

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 dividend has gone from an annual total of MYR0.14 in 2014 to the most recent total annual payment of MYR0.23. This means that it has been growing its distributions at 5.1% per annum over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings has been rising at 3.9% per annum over the last five years, which admittedly is a bit slow. While EPS growth is quite low, Petron Malaysia Refining & Marketing Bhd has the option to increase the payout ratio to return more cash to shareholders.

In Summary

Even though the dividend was cut this year, we think Petron Malaysia Refining & Marketing Bhd has the ability to make consistent payments in the future. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Petron Malaysia Refining & Marketing Bhd that investors should take into consideration. Is Petron Malaysia Refining & Marketing Bhd not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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