The board of Success Transformer Corporation Berhad (KLSE:SUCCESS) has announced it will be reducing its dividend by 22% from last year's payment of MYR0.018 on the 28th of November, with shareholders receiving MYR0.014. The dividend yield will be in the average range for the industry at 2.4%.
See our latest analysis for Success Transformer Corporation Berhad
Success Transformer Corporation Berhad's Payment Has Solid Earnings Coverage
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. However, Success Transformer Corporation Berhad's earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.
Looking forward, earnings per share could rise by 23.2% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 13% by next year, which is in a pretty sustainable range.
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. Since 2013, the dividend has gone from MYR0.015 total annually to MYR0.018. This implies that the company grew its distributions at a yearly rate of about 1.8% over that duration. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Success Transformer Corporation Berhad has impressed us by growing EPS at 23% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.
We Really Like Success Transformer Corporation Berhad's Dividend
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 Success Transformer Corporation Berhad has the makings of a solid income stock moving forward. By reducing the dividend, pressure will be taken off the balance sheet, which could help the dividend to be consistent in the future. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 2 warning signs for Success Transformer Corporation 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.