Westports Holdings Berhad (KLSE:WPRTS) has announced that it will be increasing its dividend from last year's comparable payment on the 29th of February to MYR0.0872. This will take the dividend yield to an attractive 4.6%, providing a nice boost to shareholder returns.

Check out our latest analysis for Westports Holdings Berhad

Westports Holdings Berhad's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last dividend made up a very large portion of earnings and also represented 76% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but it is still in a reasonable range to continue with.

The next year is set to see EPS grow by 11.3%. Assuming the dividend continues along recent trends, we think the payout ratio could be 70% by next year, which is in a pretty sustainable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the annual payment back then was MYR0.104, compared to the most recent full-year payment of MYR0.174. This works out to be a compound annual growth rate (CAGR) of approximately 5.3% a year 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.

The Dividend Has Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Westports Holdings Berhad has been growing its earnings per share at 7.9% 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.

Our Thoughts On Westports Holdings Berhad's Dividend

Overall, we always like to see the dividend being raised, but we don't think Westports Holdings Berhad will make a great income stock. While Westports Holdings Berhad is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We don't think Westports Holdings Berhad is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Westports Holdings 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.