Friday 29 Mar 2024
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KUALA LUMPUR (July 23): In the current low interest rate environment, investors are increasingly turning to dividend-paying stocks for yields and safety, according to the Edge weekly in its latest edition.

In the magazine’s cover story, the Edge’s Alex Chong wrote despite declining earnings in the past two years, most companies listed on Bursa Malaysia have been able to maintain their dividend payouts at above 3%.

The weekly however said that some pertinent questions come to mind, especially for income investors: Can the companies maintain dividends amid a slowing economy? What sectors and companies are reducing dividends? And more importantly, are there any sectors or companies that are paying better dividends?

The weekly said while companies may pay dividends in the next quarter after they have declared the quantum, most of them pay out at a predictable frequency and time every year, making such cash flow data comparable on a year-on-year basis.

That said, the magazine said it should be noted that the dividend data from cash flow statements was lagging by a quarter and it disregards the sources of the funds, that is, the dividends could come from non-operating activities. For instance, companies could sell their assets and pay dividends with the proceeds.

The Edge said that sectors that paid lower dividends in the first quarter — a RM2.3 billion reduction — include plantation, telecommunications, oil and gas and automotive.

 

Dividend cut by heavyweight sectors

The plantation sector accounted for 28.7% of the RM2.3 billion reduction in dividends, followed by conglomerate (26%), telecommunications (17.3%), oil and gas equipment and services (5.8%) and automotive (3.8%). Together, the five sectors (based on Bloomberg classification) accounted for 82% of the amount.

At the company level, conglomerate Sime Darby Bhd saw the biggest reduction in dividend payout — RM639 million — in the first quarter due to lower earnings from its plantation, industrial and motor segments. Note that the plantation segment was the group’s largest earnings contributor, accounting for a quarter of its revenue and a third of its operating income in FY2015.

Other plantation companies that cut dividend sharply include Kuala Lumpur Kepong Bhd (KLK) and IOI Corp Bhd, which were affected by weak crude palm oil prices last year. While KLK saw its FY2015 earnings fall 12.3% to RM869.9 million from a year ago, IOI Corp’s earnings plunged 95% to RM168.1 million from FY2014, mainly due to its large US dollar debt exposure.

As for Kulim Malaysia Bhd, the company paid a special dividend of RM500 million in 1Q2015 instead of an interim dividend like in 2014. This came about after it disposed of New Britain Palm Oil Ltd to Sime Darby. Having completed its capital reduction and repayment exercise on July 5, Kulim is in the process of being taken private by controlling shareholder Johor Corp.

For more details on how other sectors performed, read the latest edition of the Edge for the week of July 25 – July 31 available at newsstands now.

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