Muda Holdings Berhad’s (KLSE: MUDA) Investors are due to receive payment of RM0.05 per share on July 15. This payout means the dividend yield will be 2.3%, which is around the industry average.

See our latest analysis for Muda Holdings Berhad

Muda Holdings Berhad payment has strong earnings coverage

While it’s always good to see a strong dividend yield, we also need to consider whether the payout is feasible. Based on the last payout, Muda Holdings Berhad was only paying out a fraction of the profits, but the payout was 148% of the cash flow. Although the company may be trying to establish a balanced dividend policy, such a high cash payout ratio could expose the dividend to a reduction should the company run into difficulty.

Over the next year, EPS could rise 16.1% if recent trends continue. If the dividend continues to follow recent trends, we estimate the payout ratio to be 26%, which is within the range that allows us to be comfortable with the sustainability of the dividend.

Muda Holdings Berhad has a strong track record

The company has a steady history of paying dividends with very little fluctuation. The dividend has increased from RM0.025 in 2012 to the most recent annual payment of RM0.05. This means that it increased its distributions by 7.2% per year during this period. Companies like this can be very valuable in the long run, if the decent growth rate can be maintained.

The dividend should increase

Some investors will be eager to buy some of the company’s stock based on its dividend history. We are encouraged to see that Muda Holdings Berhad has grown its earnings per share by 16% per year over the past five years. A low payout ratio and decent growth suggest the company is reinvesting well, and also has plenty of room to grow the dividend over time.

In summary

In summary, while it’s good to see the dividend hasn’t been cut, we’re a little cautious about Muda Holdings Berhad’s payouts as there may be issues sustaining them in the future. With no cash flow, it’s hard to see how the company can sustain a dividend payment. We would be a bit cautious to rely on this stock primarily for dividend income.

It is important to note that companies with a consistent dividend policy will generate greater investor confidence than those with an erratic policy. Yet investors must consider a host of other factors, aside from dividend payments, when analyzing a company. Pushing the debate a little further, we have identified 3 warning signs for Muda Holdings Berhad that investors should be aware of going forward. Looking for more high yield dividend ideas? Try our collection of strong dividend payers.

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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.