The board of Scientex Packaging (Ayer Keroh) Berhad (KLSE:SCIPACK) has announced that it will pay a dividend on the 22nd of January, with investors receiving MYR0.025 per share. This payment means that the dividend yield will be 2.3%, which is around the industry average.

View our latest analysis for Scientex Packaging (Ayer Keroh) Berhad

Scientex Packaging (Ayer Keroh) Berhad's Earnings Easily Cover The Distributions

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Scientex Packaging (Ayer Keroh) Berhad is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Over the next year, EPS could expand by 10.6% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 33%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the annual payment back then was MYR0.0463, compared to the most recent full-year payment of MYR0.05. Dividend payments have been growing, but very slowly over the period. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

The Dividend Looks Likely To Grow

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. It's encouraging to see that Scientex Packaging (Ayer Keroh) Berhad has been growing its earnings per share at 11% a year over the past five years. Scientex Packaging (Ayer Keroh) Berhad definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On Scientex Packaging (Ayer Keroh) Berhad's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Scientex Packaging (Ayer Keroh) Berhad's payments, as there could be some issues with sustaining them into the future. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income 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. For example, we've picked out 2 warning signs for Scientex Packaging (Ayer Keroh) Berhad that investors should know about before committing capital to this stock. 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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.