Should You Rejoice over 100% Dividend Payout Policy?

2018 valentines day was indeed a happy day for Carlsberg Malaysia shareholders as the board formally announced a new dividend  policy whereby Carlsberg Malaysia will pay 100% of its net profit to shareholders moving forward.

In fact, it has paid average 100% or more of its net profit in the past 3 years (2015 -2017), hence the announcement was basically to formalize the new dividend payout policy.

Can Carlsberg Malaysia afford to pay out 100% of its net profit?

1) It is in net cash position ( cash balance > debt balance) in 2017.

2) Healthy current ratio (current asset > current liabilities) of more than 1x in 2017.

3) Strong free cash flow position ( operating cash flow > capital expenditure) in 2017.

4) Business is relatively stable and not highly cyclical, although subject to seasonality like festive season. When economy is bad, people may even drink more.

5) No material litigation against the company but bear in mind it has RM55 mil of custom duty or tax liability if it crystalize.

Based on the above, it seems like Carlsberg Malaysia is in a position to adopt 100% dividend payout policy. 

   Source: Dividend.com

However, not all is rosy with 100% payout ratio. If a company's profitability declines, there could even be a possibility of dividend cut.

Hence, while shareholders rejoice over the 100% dividend payout policy, close monitoring on its future business performance is still critical to assess if the payout is sustainable over the long run, especially if it pays above 100% of its net profit on prolonged basis.