Bermaz Auto Berhad (KLSE: BAUTO) shareholders to receive larger dividend than last year

Bermaz Auto Berhad (KLSE: BAUTO) will increase its dividend on February 4 to RM 0.015. This brings the dividend yield from 3.6% to 4.1%, which shareholders will be delighted with.

Check out our latest analysis for Bermaz Auto Berhad

Bermaz Auto Berhad’s profits easily cover distributions

While it’s great to have a strong dividend yield, we also need to determine if the payout is sustainable. Prior to this announcement, Bermaz Auto Berhad’s dividend was comfortably covered by both cash flow and earnings. This indicates that a fairly large proportion of the profits are reinvested in the business.

Next year, EPS is expected to grow 14.4%. If the dividend continues according to recent trends, we estimate that the payout ratio will be 47%, which is within the range that puts us at ease with the sustainability of the dividend.

Historic KLSE dividend: BAUTO January 4, 2022

Bermaz Auto Berhad’s dividend was inconsistent

It’s heartwarming to see that Bermaz Auto Berhad has been paying a dividend for several years now, but it has been cut at least once during that time. For this reason, we are a little cautious about the consistency of dividends over a full economic cycle. The first annual payment in the last 8 years was 0.025 RM in 2014, and the payment for the most recent year was 0.06 RM. This implies that the company has increased its distributions at an annual rate of approximately 12% over that time. Despite the rapid growth of the dividend over the past few years, we have also seen payouts decline in the past, which makes us cautious.

Bermaz Auto Berhad may struggle to raise dividend

With a relatively volatile dividend, it is even more important to assess whether earnings per share are increasing, which could indicate an increase in the dividend in the future. Bermaz Auto Berhad has seen its earnings per share drop 4.0% per year over the past five years. If the company earns less over time, it naturally follows that it will also have to pay less dividends. It’s not all bad news though, as earnings are expected to rise over the next 12 months – we’d just be a little cautious until that can turn into a longer-term trend.

Our thoughts on the Bermaz Auto Berhad dividend

Overall, we still like to see the dividend go up, but we don’t think Bermaz Auto Berhad will make a good income title. The company generates a lot of cash, which could sustain the dividend for a while, but the track record has not been great. We would be a little cautious if we were relying on this security primarily for dividend income.

Companies with a stable dividend policy are likely to benefit from greater investor interest than those with a more inconsistent approach. At the same time, there are other factors that our readers should be aware of before investing any capital in a stock. For example, we have selected 1 warning sign for Bermaz Auto Berhad that investors should be aware of before committing capital to this stock. Looking for more high yield dividend ideas? Try our organized list of big dividend payers.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.

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