The board of Plenitude Berhad (KLSE:PLENITU) has announced that it will be increasing its dividend by 20% on the 22nd of November to MYR0.03, up from last year's comparable payment of MYR0.025. This takes the annual payment to 2.8% of the current stock price, which unfortunately is below what the industry is paying.
See our latest analysis for Plenitude Berhad
Plenitude Berhad's Payment Has Solid Earnings Coverage
While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Before making this announcement, Plenitude Berhad was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.
Unless the company can turn things around, EPS could fall by 1.1% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 24%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.
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 annual payment back then was MYR0.05, compared to the most recent full-year payment of MYR0.03. Doing the maths, this is a decline of about 5.0% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.
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. Although it's important to note that Plenitude Berhad's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.
In Summary
In summary, while it's always good to see the dividend being raised, we don't think Plenitude Berhad's payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. To that end, Plenitude Berhad has 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about. Is Plenitude Berhad not quite the opportunity you were looking for? Why not check out our selection of top 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.