Rhong Khen International Berhad's (KLSE:RKI) dividend is being reduced from last year's payment covering the same period to MYR0.03 on the 12th of January. This means that the dividend yield is 3.2%, which is a bit low when comparing to other companies in the industry.
See our latest analysis for Rhong Khen International Berhad
Rhong Khen International Berhad's Payment Has Solid Earnings Coverage
If it is predictable over a long period, even low dividend yields can be attractive. However, Rhong Khen International Berhad's earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.
Over the next year, EPS is forecast to expand by 7.9%. If the dividend continues on this path, the payout ratio could be 33% by next year, which we think can be pretty sustainable going forward.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was MYR0.015 in 2013, and the most recent fiscal year payment was MYR0.04. This implies that the company grew its distributions at a yearly rate of about 10% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Rhong Khen International Berhad has impressed us by growing EPS at 13% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.
Rhong Khen International Berhad Looks Like A Great Dividend Stock
It is generally not great to see the dividend being cut, but we don't think this should happen much if at all in the future given that Rhong Khen International Berhad has the makings of a solid income stock moving forward. The cut will allow the company to continue paying out the dividend without putting the balance sheet under pressure, which means that it could remain sustainable for longer. All of these factors considered, we think this has solid potential as a dividend stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 2 warning signs for Rhong Khen International 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.
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