Hap Seng Consolidated Berhad (KLSE:HAPSENG) Has Announced A Dividend Of RM0.10

The board of Hap Seng Consolidated Berhad (KLSE:HAPSENG) has announced that it will pay a dividend on the 23rd of June, with investors receiving RM0.10 per share. This means the dividend yield will be fairly typical at 4.5%.

Check out our latest analysis for Hap Seng Consolidated Berhad

Hap Seng Consolidated Berhad Is Paying Out More Than It Is Earning

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, Hap Seng Consolidated Berhad's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 403% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

If the company can't turn things around, EPS could fall by 1.9% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 97%, which could put the dividend under pressure if earnings don't start to improve.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from RM0.093 in 2012 to the most recent annual payment of RM0.35. This means that it has been growing its distributions at 14% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Although it's important to note that Hap Seng Consolidated Berhad's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The payments are bit high to be considered sustainable, and the track record isn't the best. 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. For example, we've picked out 3 warning signs for Hap Seng Consolidated Berhad that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield 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.