Thong Guan Industries Berhad (KLSE:TGUAN) Is Paying Out A Dividend Of MYR0.0125

Thong Guan Industries Berhad's (KLSE:TGUAN) investors are due to receive a payment of MYR0.0125 per share on 18th of January. This means the annual payment will be 2.3% of the current stock price, which is lower than the industry average.

Check out our latest analysis for Thong Guan Industries Berhad

Thong Guan Industries Berhad's Dividend Is Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, Thong Guan Industries Berhad's earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Over the next year, EPS is forecast to expand by 95.6%. If the dividend continues along recent trends, we estimate the payout ratio will be 12%, which is in the range that makes us comfortable with the sustainability of the dividend.

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 2012, the annual payment back then was MYR0.03, compared to the most recent full-year payment of MYR0.055. This implies that the company grew its distributions at a yearly rate of about 6.2% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Thong Guan Industries Berhad might have put its house in order since then, but we remain cautious.

Thong Guan Industries Berhad May Find It Hard To Grow The Dividend

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. Earnings have grown at around 4.1% a year for the past five years, which isn't massive but still better than seeing them shrink. While EPS growth is quite low, Thong Guan Industries Berhad has the option to increase the payout ratio to return more cash to shareholders.

Our Thoughts On Thong Guan Industries Berhad's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Thong Guan Industries Berhad's payments, as there could be some issues with sustaining them into the future. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 2 warning signs for Thong Guan Industries Berhad (of which 1 can't be ignored!) you should know about. Is Thong Guan Industries 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.

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