The board of Harbour-Link Group Berhad (KLSE:HARBOUR) has announced that it will pay a dividend of MYR0.03 per share on the 27th of December. This payment means that the dividend yield will be 3.8%, which is around the industry average.
Check out our latest analysis for Harbour-Link Group Berhad
Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, Harbour-Link Group Berhad's dividend was only 28% of earnings, however it was paying out 171% of free cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.
Looking forward, earnings per share could rise by 28.2% over the next year if the trend from the last few years continues. If the dividend continues along recent trends, we estimate the payout ratio will be 25%, which is in the range that makes us comfortable with the sustainability of the dividend.
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was MYR0.0114 in 2014, and the most recent fiscal year payment was MYR0.06. This works out to be a compound annual growth rate (CAGR) of approximately 18% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Harbour-Link Group Berhad has seen EPS rising for the last five years, at 28% per annum. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for Harbour-Link Group Berhad that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.