The board of OKA Corporation Bhd (KLSE:OKA) has announced that it will be increasing its dividend by 8.3% on the 21st of November to MYR0.013, up from last year’s comparable payment of MYR0.012. This makes the dividend yield 5.2%, which is above the industry average.
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We like to see robust dividend yields, but that doesn’t matter if the payment isn’t sustainable. Based on the last dividend, OKA Corporation Bhd is earning enough to cover the payment, but then it makes up 128% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.
If the trend of the last few years continues, EPS will grow by 2.2% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 65% by next year, which is in a pretty sustainable range.
Check out our latest analysis for OKA Corporation Bhd
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the annual payment back then was MYR0.02, compared to the most recent full-year payment of MYR0.025. This implies that the company grew its distributions at a yearly rate of about 2.3% over that duration. We’re glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings per share has been crawling upwards at 2.2% per year. Growth of 2.2% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This could mean the dividend doesn’t have the growth potential we look for going into the future.
Overall, we always like to see the dividend being raised, but we don’t think OKA Corporation Bhd will make a great income stock. While OKA Corporation Bhd is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.
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. Case in point: We’ve spotted 3 warning signs for OKA Corporation Bhd (of which 1 is a bit concerning!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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