Poh Huat Resources: A High-Yield Dividend in a Stormy Sea?

As Poh Huat Resources Holdings Berhad (KLSE:POHUAT) prepares to pay its second interim dividend of 2025—a consistent 2 sen (MYR0.02) per share—the question on investors' minds is whether this Malaysian furniture manufacturer can sustain its generous payouts amid shaky financial underpinnings. With a dividend yield of 7.55%, the stock offers an enticing return for income seekers. But beneath the surface, red flags loom: payouts that outstrip earnings and cash flows, volatile profitability, and a stock price that has fallen by nearly 27% over the past year. Let's dissect whether this dividend is a beacon of stability or a mirage.

The Allure of the Dividend

Poh Huat's dividend policy has been remarkably consistent. Since at least 2023, the company has paid MYR0.02 per share quarterly, with no cuts despite fluctuations in earnings. For the upcoming dividend, shareholders who own shares by July 8, 2025 (one trading day before the ex-date) will receive the payout on July 24, 2025. This reliability has made POHUAT a favorite among income-focused investors, especially in a market where high yields are scarce.

The dividend yield of 7.55% places it in the top quartile of Malaysian dividend payers, a figure that alone could draw investors. Yet, the appeal is tempered by the company's financial realities.

The Clouds on the Horizon

The first warning sign is the dividend payout ratios, which hit 96.9% of earnings and 137.8% of cash flows in recent periods. This means Poh Huat is paying out nearly all its earnings—and more than its cash flows—to shareholders. Such high reliance on earnings to fund dividends is unsustainable if profitability falters, as it has.

Consider the company's latest quarterly results: Earnings per share (EPS) for the quarter ending April 30, 2025, plummeted to MYR0.002, down 93% quarter-over-quarter and 92% year-over-year. Even as earnings collapsed, the dividend stayed flat. This suggests management is prioritizing payouts over reinvestment or reserves—a strategy that could backfire if earnings don't rebound.

Navigating the Uncertainty

The company's management has signaled optimism, citing a projected 111.9% rise in EPS over the next year. If realized, this could alleviate payout pressures. However, the track record is shaky: Over the past five years, earnings have declined by 16% annually, and dividend cuts occurred within the past decade.

Poh Huat's business also faces structural challenges. As a manufacturer reliant on exports to North America, Europe, and Asia, it is vulnerable to global economic slowdowns and currency fluctuations. Additionally, its forays into property development and warehouse leasing—a diversification strategy—add complexity without clear evidence of improving profitability.

Investment Considerations

Investors must weigh the dividend's allure against the risks:
1. High yield, high risk: The 7.55% yield is enticing, but it comes with the risk of a dividend cut if earnings don't recover.
2. Valuation concerns: The stock's 27% decline year-to-date suggests the market already discounts these risks.
3. Liquidity and operations: Poh Huat's operations span Malaysia, Vietnam, and South Africa, which could provide resilience—but also complicate cash flow management.

Actionable advice:
- Income investors: Proceed with caution. The dividend is stable for now, but monitor quarterly earnings and payout ratios closely. If earnings miss expectations again, a cut could send the stock lower.
- Growth investors: Avoid unless you believe in a near-term turnaround. The stock's valuation already reflects pessimism, but the path to profit growth is unclear.
- Dividend reinvestment: Only consider if you can withstand volatility and have a long-term horizon.

Final Take

Poh Huat Resources offers a dividend that stands out in Malaysia's market, but its sustainability hinges on a turnaround in profitability. With payout ratios at precarious levels and earnings in free fall, this is a stock for investors willing to bet on a rebound—and prepared to endure the storm if it doesn't materialize.

As always, consult financial advisors and review Poh Huat's official disclosures before making investment decisions.