The board of Hibiscus Petroleum Berhad( KLSE:HIBISCS ) has announced that it will pay a dividend of MYR0.02 per share on the 27th of January. This means that the annual payment will be 5.9% of the current stock price, which is in line with the average for the industry.
Hibiscus Petroleum Berhad's Future Dividend Projections Appear Well Covered By Earnings
Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, the dividend made up 103% of earnings, and the company was generating negative free cash flows. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.
According to analysts, EPS should be several times higher next year. If the dividend continues along recent trends, we estimate the payout ratio will be 33%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.
View our latest analysis for Hibiscus Petroleum Berhad
Hibiscus Petroleum Berhad's Dividend Has Lacked Consistency
Looking back, Hibiscus Petroleum Berhad's dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2020, the annual payment back then was MYR0.025, compared to the most recent full-year payment of MYR0.085. This works out to be a compound annual growth rate (CAGR) of approximately 28% 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.
Dividend Growth Could Be Constrained
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Hibiscus Petroleum Berhad has grown earnings per share at 13% per year over the past five years. While EPS is growing at a decent rate, but future growth could be limited by the amount of earnings being paid out to shareholders.
The Dividend Could Prove To Be Unreliable
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Hibiscus Petroleum Berhad's payments, as there could be some issues with sustaining them into the future. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. This company is not in the top tier of income providing stocks.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 Hibiscus Petroleum Berhad (of which 1 shouldn't be ignored!) you should know about. Is Hibiscus Petroleum Berhad not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch
with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
