The board of Scientex Packaging (Ayer Keroh) Berhad (KLSE:SCIPACK) has announced that it will be paying its dividend of MYR0.05 on the 14th of January, an increased payment from last year's comparable dividend. This will take the annual payment to 5.3% of the stock price, which is above what most companies in the industry pay.
Check out our latest analysis for Scientex Packaging (Ayer Keroh) Berhad
Scientex Packaging (Ayer Keroh) Berhad's Projected Earnings Seem Likely To Cover Future Distributions
If the payments aren't sustainable, a high yield for a few years won't matter that much. At the time of the last dividend payment, Scientex Packaging (Ayer Keroh) Berhad was paying out a very large proportion of what it was earning and 148% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.
EPS is set to grow by 18.9% over the next year if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could reach 80%, which is on the higher side, but certainly still feasible.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of MYR0.0521 in 2014 to the most recent total annual payment of MYR0.10. This implies that the company grew its distributions at a yearly rate of about 6.7% over that duration. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.
Scientex Packaging (Ayer Keroh) Berhad Might Find It Hard To Grow Its Dividend
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. It's encouraging to see that Scientex Packaging (Ayer Keroh) Berhad has been growing its earnings per share at 19% a year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.
Scientex Packaging (Ayer Keroh) Berhad's Dividend Doesn't Look Sustainable
In summary, while it's always good to see the dividend being raised, we don't think Scientex Packaging (Ayer Keroh) Berhad's payments are rock solid. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. This company is not in the top tier of income providing stocks.