The board of Cnergenz Berhad (KLSE:CNERGEN) has announced that it will pay a dividend of MYR0.008 per share on the 1st of April. This makes the dividend yield 2.9%, which will augment investor returns quite nicely.
Check out our latest analysis for Cnergenz Berhad
Cnergenz Berhad’s Dividend Is Well Covered By Earnings
We like to see robust dividend yields, but that doesn’t matter if the payment isn’t sustainable. Prior to this announcement, Cnergenz Berhad’s dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.
Unless the company can turn things around, EPS could fall by 10.9% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 17%, which we consider to be quite comfortable, with most of the company’s earnings left over to grow the business in the future.
Cnergenz Berhad Is Still Building Its Track Record
The company hasn’t been paying a dividend for very long at all, so we can’t really make a judgement on how stable the dividend has been. This doesn’t mean that the company can’t pay a good dividend, but just that we want to wait until it can prove itself.
The Dividend Has Limited Growth Potential
The company’s investors will be pleased to have been receiving dividend income for some time. However, initial appearances might be deceiving. Earnings per share has been sinking by 11% over the last three years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.
In Summary
Overall, it’s nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The payments haven’t been particularly stable and we don’t see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we’ve come across 3 warning signs for Cnergenz Berhad you should be aware of, and 1 of them shouldn’t be ignored. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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