The board of George Kent (Malaysia) Berhad (KLSE:GKENT) has announced it will be reducing its dividend by 25% from last year’s payment of MYR0.01 on the 8th of January, with shareholders receiving MYR0.0075. Despite the cut, the dividend yield of 3.2% will still be comparable to other companies in the industry.

Check out our latest analysis for George Kent (Malaysia) Berhad

George Kent (Malaysia) Berhad’s Distributions May Be Difficult To Sustain

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. George Kent (Malaysia) Berhad is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.

EPS has fallen by an average of 39.3% in the past, so this could continue over the next year. While this means that the company will be unprofitable, we generally believe cash flows are more important, and the current cash payout ratio is quite healthy, which gives us comfort.

Dividend Volatility

The company has a long dividend track record, but it doesn’t look great with cuts in the past. The annual payment during the last 10 years was MYR0.026 in 2013, and the most recent fiscal year payment was MYR0.015. This works out to be a decline of approximately 5.4% per year over that time. A company that decreases its dividend over time generally isn’t what we are looking for.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, and a poor history of shrinking dividends, it’s even more important to see if EPS is growing. George Kent (Malaysia) Berhad’s earnings per share has shrunk at 39% a year over the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

George Kent (Malaysia) Berhad’s Dividend Doesn’t Look Sustainable

Overall, it’s not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn’t been great. We would be a touch cautious of relying on this stock primarily for the dividend income.

It’s important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, George Kent (Malaysia) Berhad has 3 warning signs (and 1 which doesn’t sit too well with us) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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