The Board of YTL Power International Berhad (KLSE:YTLPOWR) has announced that it will increase its dividend to RM0.04 on November 29, which is 14% higher than last year’s payment of RM0.035 for the same period. Although the dividend is now higher, the yield is only 1.7%, which is below the industry average.

Check out our latest analysis for YTL Power International Berhad

YTL Power International Berhad’s earnings easily cover the distributions

While yield is important, when looking at a company’s dividend, it is also important to consider whether current payout levels are feasible. However, prior to this announcement, YTL Power International Berhad’s dividend was comfortably covered by cash flow and profits. This means that the majority of profits are retained to grow the business.

Next year, EPS is expected to grow by 0.7%. If the dividend stays on this path, the payout ratio could be 15% next year, which we believe can be quite sustainable going forward.

Dividend volatility

Although the company has a long history of paying dividends, it has cut them at least once in the last 10 years. The annual payment over the last 10 years was MYR0.10 in 2014 and the last payment was MYR0.07 in the financial year. The dividend has declined by about 3.5% annually over that period. A company that cuts its dividend over time is generally not what we look for.

The dividend is likely to increase

With a relatively unstable dividend, it is even more important to assess whether earnings per share are growing, which could indicate a rising dividend in the future. It is encouraging to see that YTL Power International Berhad has grown earnings per share by 47% per year over the past five years. Earnings per share are growing solidly and the payout ratio is low, which we believe is an ideal combination for a dividend stock, given the company can increase the dividend fairly easily in the future.

YTL Power International Berhad looks like a great dividend stock

Overall, a dividend increase is always good and we think YTL Power International Berhad is a strong dividend stock thanks to its track record and growing earnings. The company easily earns enough to cover its dividend payments and it’s nice to see that earnings being converted into cash flow. All in all, this ticks many of the boxes we look for when choosing a dividend stock.

Market movements show how much a consistent dividend policy is valued compared to a more erratic one. At the same time, there are other factors that our readers should be aware of before putting capital into a stock. For example, we have selected the following: 1 warning sign for YTL Power International Berhad investors should know before investing capital in this stock. Looking for more high yield dividend ideas? Try our Collection of strong dividend payers.

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