Is Scientex Berhad (KLSE:SCIENTX) a Reliable Dividend Play in 2026?

For income-focused investors, the allure of a stable dividend stream often hinges on a company's ability to sustain payouts amid economic fluctuations. Scientex Berhad (KLSE:SCIENTX), a Malaysian materials sector player, has long been a fixture in dividend portfolios. However, as 2026 approaches, the question of its reliability as a dividend play demands a closer look at its earnings trajectory, debt dynamics, and forward-looking projections.

Dividend Payout and Earnings Trends: A Mixed Picture

Scientex Berhad currently maintains a dividend payout ratio of 36%, a figure that suggests its distributions are comfortably covered by earnings. This ratio, while conservative, provides a buffer against short-term volatility. Yet, the company's earnings history tells a different story. Over the past five years, earnings per share (EPS) have shown uneven growth, with a notable dip from RM0.26 in FY 2022 to RM0.29 in FY 2021. For FY 2025, EPS fell slightly to RM0.34 from RM0.35 in FY 2024, underscoring the fragility of its earnings base.

While a 36% payout ratio is reassuring, the lack of consistent EPS growth raises concerns about the company's ability to maintain or increase dividends during periods of economic stress.

Debt Levels and Financial Health: A Double-Edged Sword

Scientex's reliance on debt has grown significantly over the past five years. Its debt-to-equity ratio climbed from 37.8% in 2020 to 55.6% as of 2025, reflecting a heightened dependence on borrowed capital. Total debt now stands at MYR2.44 billion, compared to equity of MYR4.39 billion. While this might seem alarming, the company's interest coverage ratio of 109x-a metric that measures its ability to meet interest obligations-remains robust, suggesting that at least for now, debt servicing is not a pressing risk. However, the rising debt burden could limit flexibility in the face of declining revenues or rising interest rates, both of which could pressure future dividend sustainability.

Future Projections: Optimism Amid Uncertainty

Looking ahead, forecasts paint a cautiously optimistic picture. Earnings are projected to grow at an annual rate of 6.2%, with revenue expected to expand by 6.5% per year. These figures, if realized, would provide a tailwind for dividend growth. However, the absence of granular operating cash flow data for 2020–2025 complicates a full assessment of the company's liquidity position. Free cash flow has shown a gradual upward trend, but without specific figures, it is difficult to gauge whether the company generates sufficient cash to fund dividends without relying on debt or asset sales.

Balancing Risks and Rewards

Scientex Berhad's dividend appears sustainable in the near term, supported by a low payout ratio and strong interest coverage. However, the combination of stagnant earnings growth, rising debt, and limited visibility into operating cash flow introduces volatility risks. For 2026, the projected earnings growth is a positive signal, but investors must remain cautious. A sudden slowdown in the materials sector or a spike in borrowing costs could strain the company's financial flexibility, potentially forcing a dividend cut.

Conclusion: A Dividend Play with Caveats

Scientex Berhad (KLSE:SCIENTX) offers a relatively safe dividend yield, but its reliability as a long-term income play hinges on its ability to navigate structural challenges. Investors should monitor its debt trajectory and earnings resilience closely. While the current payout ratio and interest coverage provide a buffer, the lack of robust earnings growth and operating cash flow transparency means this stock is best suited for risk-tolerant income seekers who can stomach potential volatility.