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Nestlé (Malaysia) Berhad (KLSE:NESTLE) has announced that it will pay a dividend of MYR0.70 per share on the 5th of October. Including this payment, the dividend yield on the stock will be 2.0%, which is a modest boost for shareholders' returns.
See our latest analysis for Nestlé (Malaysia) Berhad
Nestlé (Malaysia) Berhad's Earnings Easily Cover The Distributions
Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, the company was paying out 99% of what it was earning. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.
Earnings per share is forecast to rise by 29.7% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 77% - on the higher side, but we wouldn't necessarily say this is unsustainable.
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 MYR1.80 total annually to MYR2.62. This means that it has been growing its distributions at 3.8% per annum over that time. 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.
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. Nestlé (Malaysia) Berhad hasn't seen much change in its earnings per share over the last five years.
Nestlé (Malaysia) Berhad's Dividend Doesn't Look Great
Overall, while some might be pleased that the dividend wasn't cut, we think this may help Nestlé (Malaysia) Berhad make more consistent payments in the future. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. We don't think that this is a great candidate to be an income stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Nestlé (Malaysia) Berhad that investors need to be conscious of moving forward. Is Nestlé (Malaysia) Berhad not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.