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Westports Holdings Berhad (KLSE:WPRTS) is reducing its dividend from last year's comparable payment to MYR0.0746 on the 20th of February. Despite the cut, the dividend yield of 3.8% will still be comparable to other companies in the industry.
See our latest analysis for Westports Holdings Berhad
Westports Holdings 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. Prior to this announcement, Westports Holdings Berhad's dividend made up quite a large proportion of earnings but only 73% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.
Looking forward, earnings per share is forecast to rise by 17.3% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 61%, which is in the range that makes us comfortable with the sustainability of the dividend.
Westports Holdings Berhad's Dividend Has Lacked Consistency
Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from an annual total of MYR0.104 in 2014 to the most recent total annual payment of MYR0.144. This implies that the company grew its distributions at a yearly rate of about 3.6% over that duration. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.
Dividend Growth May Be Hard To Achieve
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. Unfortunately, Westports Holdings Berhad's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. Westports Holdings Berhad's earnings per share has barely grown, which is not ideal - perhaps this is why the company pays out the majority of its earnings to shareholders. This isn't the end of the world, but for investors looking for strong dividend growth they may want to look elsewhere.
Our Thoughts On Westports Holdings Berhad's Dividend
Overall, we think that Westports Holdings Berhad could make a reasonable income stock, even though it did cut the dividend this year. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.