DXN Holdings Declares Dividend Amid Questions Over Payout Sustainability

Kuala Lumpur – DXN Holdings Bhd (KLSE:DXN) confirmed it will distribute a dividend of MYR0.008 per share on February 27, translating to a forward yield of approximately 7.3% based on recent share prices. The payout comes as the direct-selling and wellness products group continues its shareholder returns policy, though financial analysts are scrutinizing the balance between dividends, earnings, and cash generation.

The declared dividend appears comfortably covered by the company's earnings. However, a deeper look reveals the payout consumed 143% of its free cash flow in the last period. This highlights a potential vulnerability: while profits can support the current dividend, a sustained high cash payout ratio could pressure the company's financial flexibility if operational challenges arise.

"The yield is undoubtedly attractive for income-seeking investors," said a market analyst familiar with the company. "But the cash flow coverage is a red flag. It suggests the dividend is being prioritized, possibly at the expense of reinvesting for future growth or building a buffer."

On a positive note, DXN's dividend per share has grown significantly, from MYR0.016 annually in 2023 to MYR0.037 currently—a compound annual growth rate of 32%. This rapid increase has pleased shareholders but is built on a relatively short track record. Concurrently, the company has delivered a respectable 8.2% annual growth in earnings per share over the past five years. Forecasts suggest EPS could jump by 39.8% in the coming year, which, if realized, would bring the dividend payout ratio down to a more sustainable-looking 8.4%.

The central question for investors is whether this model is sustainable through a full economic cycle. The company seems to be in a phase of returning cash to shareholders, but the reliance on cash flows for the dividend necessitates consistent operational performance.

Investor Reactions:

Rajesh Menon, Portfolio Manager (Kuala Lumpur): "For a yield-focused portfolio, DXN remains on the watchlist. The growth in the dividend amount is impressive, and if the EPS forecast holds, the sustainability concerns ease significantly. It's a calculated risk for income."

Sarah Chen, Retail Investor (Penang): "Finally, some tangible return! In this market, a 7%+ yield from a established company is a blessing. I'm less worried about the cash flow detail—many solid companies have thin cash cover at times. They're rewarding loyalty, and I appreciate that."

David Thorne, Independent Analyst (Financial Blog): "This is a classic case of dividend mirage. A soaring yield fueled by a rising payout and possibly a stagnant or falling share price. Paying out more cash than you generate is not a 'reward'—it's a potential liquidity time bomb. Investors chasing the yield are ignoring the fundamental warning signs."

Aisha Hassan, Long-term Shareholder (Johor Bahru): "I've held through ups and downs. The consistent dividend is a commitment I value. The management has navigated challenges before. I'm optimistic about the EPS growth forecast and believe they are managing the capital allocation prudently for this stage of the business cycle."

Market observers note that DXN's situation reflects a broader tension in equity markets: the high premium placed on predictable income versus the need for companies to maintain robust balance sheets. Investors are advised to consider both yield and the underlying financial health that supports it.

Disclaimer: This analysis is based on historical data and analyst forecasts. It is not financial advice. Investors should conduct their own research or consult a financial advisor, considering their own objectives and financial situation.