The board of Paramount Corporation Berhad (KLSE:PARAMON) has announced that it will be paying its dividend of MYR0.03 on the 21st of September, an increased payment from last year's comparable dividend. This will take the dividend yield to an attractive 7.4%, providing a nice boost to shareholder returns.

See our latest analysis for Paramount Corporation Berhad

Paramount Corporation Berhad Is Paying Out More Than It Is Earning

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, Paramount Corporation Berhad was quite comfortably earning enough to cover the dividend. This indicates that quite a large proportion of earnings is being invested back into the business.

The next 12 months is set to see EPS grow by 20.3%. If the dividend continues on its recent course, the payout ratio in 12 months could be 115%, which is a bit high and could start applying pressure to the balance sheet.

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 MYR0.0571 in 2013, and the most recent fiscal year payment was MYR0.07. This implies that the company grew its distributions at a yearly rate of about 2.1% over that duration. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

The Dividend Has Limited Growth Potential

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. Paramount Corporation Berhad's earnings per share has shrunk at 13% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

Our Thoughts On Paramount Corporation Berhad's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Paramount Corporation Berhad's payments are rock solid. 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 probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 2 warning signs for Paramount Corporation Berhad you should be aware of, and 1 of them is a bit concerning. Is Paramount Corporation Berhad not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.