Gas Malaysia Berhad (KLSE:GASMSIA) pays bigger dividend than last year

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Gas Malaysia Berhad’s (KLSE:GASMSIA) dividend will increase to RM0.069 on July 27. This brings the dividend yield to 6.4%, which is above the industry average.

Check out our latest analysis for Gas Malaysia Berhad

Gas Malaysia Berhad does not earn enough to cover its payments

If the payouts aren’t sustainable, a high return for a few years won’t matter much. Prior to this announcement, Gas Malaysia Berhad was paying 91% of earnings but 55% of free cash flow, which is relatively low. This leaves a lot of money to reinvest in the business.

Looking ahead, earnings per share are expected to fall 3.2% over the next year. Assuming the dividend continues to follow recent trends, we believe the payout ratio could reach 102%, which could put the dividend under pressure if earnings do not start to improve.

KLSE:GASMSIA Historic dividend May 5, 2022

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. The first annual payment in the past 10 years was RM0.10 in 2012, and the most recent year’s payment was RM0.18. This implies that the company has increased its distributions at an annual rate of approximately 5.9% over this period. We like to see dividends growing at a reasonable pace, but with at least a substantial reduction in payouts, we’re not sure this dividend stock would be ideal for someone who intends to live on income.

Gas Malaysia Berhad could increase its dividend

With a relatively unstable dividend, it is even more important to see if earnings per share increase. Gas Malaysia Berhad has seen EPS increase over the past five years, at 8.6% annually. Past earnings growth has been decent, but unless it’s one of those rare companies that can grow without additional capital investment or marketing spend, we would generally expect the ratio higher payout limits its future growth prospects.

In summary

In summary, while it’s always good to see the dividend increase, we don’t think Gas Malaysia Berhad’s payouts are strong. Payouts haven’t been particularly steady and we don’t see huge upside potential, but with the dividend well covered by cash flow, it could prove reliable in the short term. 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. For example, we identified 1 warning sign for Gas Malaysia Berhad which you should be aware of before investing. Looking for more high yield dividend ideas? Try our collection of strong dividend payers.

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.

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