The board of Nestlé (Malaysia) Berhad (KLSE:NESTLE) has announced that it will pay a dividend of MYR0.70 per share on the 14th of December. Including this payment, the dividend yield on the stock will be 2.1%, which is a modest boost for shareholders’ returns.

Check out our latest analysis for Nestlé (Malaysia) Berhad

Nestlé (Malaysia) Berhad’s Dividend Is Well Covered By Earnings

If it is predictable over a long period, even low dividend yields can be attractive. Based on the last payment, the dividend made up 87% of cash flows, but a higher proportion of net income. While the cash payout ratio isn’t necessarily a cause for concern, the company is probably focusing more on returning cash to shareholders than growing the business.

EPS is set to grow by 23.7% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 78% – on the higher side, but we wouldn’t necessarily say this is unsustainable.

Dividend Volatility

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 MYR2.10 in 2013, and the most recent fiscal year payment was MYR2.62. This means that it has been growing its distributions at 2.2% per annum over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company’s earnings are not consistent.

Nestlé (Malaysia) 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. Nestlé (Malaysia) Berhad hasn’t seen much change in its earnings per share over the last five years.

The Dividend Could Prove To Be Unreliable

Overall, it’s nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The payments are bit high to be considered sustainable, and the track record isn’t the best. We would probably look elsewhere for an income investment.

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. For instance, we’ve picked out 2 warning signs for Nestlé (Malaysia) Berhad that investors should take into consideration. Is Nestlé (Malaysia) 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.