The advice of Choo Bee Metal Industries Berhad (KLSE:CHOOBEE) has announced that it will increase its dividend on August 3 to RM0.075. This makes the dividend yield 3.5%, which is above the industry average.
See our latest analysis for Choo Bee Metal Industries Berhad
Choo Bee Metal Industries Berhad payment has strong revenue coverage
While it’s good to have a high dividend yield, we also have to ask ourselves if the payout is sustainable. Prior to this announcement, Choo Bee Metal Industries Berhad’s earnings easily covered the dividend, but free cash flow was negative. We think cash flow should take priority over earnings, so that’s certainly a concern for the dividend going forward.
Over the next year, EPS could increase by 23.0% if recent trends continue. If the dividend continues on this path, the payout ratio could be 8.4% by next year, which we believe can be quite sustainable going forward.
Dividend volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the past 10 years. There hasn’t been much change in the dividend over the last 10 years. It’s encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, making it less attractive as an income investment.
The dividend should increase
With a relatively volatile dividend, it is even more important to assess whether earnings per share are increasing, which could indicate dividend growth in the future. It is encouraging to see that Choo Bee Metal Industries Berhad has increased its earnings per share by 23% per year over the past five years. Earnings per share are growing at a steady pace and the payout ratio is low, which we believe is an ideal combination in a dividend-paying stock, as the company can quite easily increase the dividend in the future.
In summary
Overall, it’s probably not a great income stock, even though the dividend is being increased right now. Although the low payout ratio is a redeeming feature, this is offset by the minimum cash to cover payouts. This company is not in the high end of income providing stocks.
Companies with a stable dividend policy are likely to enjoy greater investor interest than those that suffer from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, these are not the only factors our readers should be aware of when evaluating a company. Example: we have identified 3 warning signs for Choo Bee Metal Industries Berhad (1 of which makes us a little uncomfortable!) that you should know. If you are a dividend investor, you can also consult our curated list of high yielding dividend stocks.
Feedback on this article? Concerned about content? Get in touch with us directly. You can also email the editorial team (at) Simplywallst.com.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
