Nestlé (Malaysia) Berhad (KLSE:NESTLE) pays dividend of MYR 0.70

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Nestle (Malaysia) Berhad’s (KLSE: NESTLE) investors are due to receive payment of MYR 0.70 per share on October 6. The dividend yield is 1.3% based on this payout, which is a bit low compared to other companies in the industry.

See our latest analysis for Nestlé (Malaysia) Berhad

Nestlé (Malaysia) Berhad dividend well covered by earnings

It would be nice if the yield was higher, but we should also check whether higher levels of dividend payments would be sustainable. Prior to this announcement, Nestlé (Malaysia) Berhad paid out 89% of profits and more than 75% of free cash flow. This indicates that the company is more focused on returning cash to shareholders than growing the business, but we don’t think there are necessarily signs that the dividend might be unsustainable.

Looking ahead, earnings per share are expected to grow 19.4% over the next year. Assuming the dividend continues on the trajectory it has charted recently, our estimates show the payout ratio to be 74%, which puts it in a fairly comfortable range.

KLSE:NESTLE Historic Dividend August 8, 2022

Dividend volatility

The company has a long history of dividends, but it doesn’t look good with the cuts of the past. The dividend has increased from an annual total of MYR 1.80 in 2012 to the most recent total annual payment of MYR 1.72. The dividend declined at a rate of less than 1% per year over this period. A company that decreases its dividend over time is generally not what we are looking for.

Dividend growth prospects are limited

With a relatively volatile dividend, it is even more important to assess whether earnings per share are increasing, which could indicate dividend growth in the future. Unfortunately, Nestlé (Malaysia) Berhad’s earnings per share have remained essentially flat for the past five years, meaning the dividend cannot be increased every year. Earnings per share at Nestlé (Malaysia) Berhad barely increased, which is not ideal – perhaps this is why the company pays the majority of its profits to shareholders. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often choose to pay a larger dividend instead. This is why many mature companies often have higher dividend yields.

In summary

Overall, it’s good to see consistent dividend payout, but we believe that over the longer term, the current level of payout may be unsustainable. Payouts are a bit high to be considered sustainable, and the track record isn’t the best. We don’t think Nestlé (Malaysia) Berhad is a great stock to add to your portfolio if income is your priority.

Investors generally tend to favor companies with a consistent and stable dividend policy as opposed to those with an irregular one. At the same time, there are other factors that our readers should be aware of before investing capital in a stock. For example, we chose 1 warning sign for Nestlé (Malaysia) Berhad that investors should be aware of before committing capital to this security. Is Nestlé (Malaysia) Berhad not quite the opportunity you were looking for? Why not check out our selection of the best dividend stocks.

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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