Hap Seng Consolidated Berhad (KLSE:HAPSENG) Is Paying Out A Dividend Of MYR0.10

Hap Seng Consolidated Berhad's (KLSE:HAPSENG) investors are due to receive a payment of MYR0.10 per share on 18th of December. This makes the dividend yield 6.8%, which will augment investor returns quite nicely.

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Hap Seng Consolidated Berhad's Future Dividends May Potentially Be At Risk

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Hap Seng Consolidated Berhad was paying out quite a large proportion of both earnings and cash flow, with the dividend being 440% 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.

EPS is set to fall by 12.7% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 103%, which could put the dividend under pressure if earnings don't start to improve.

See our latest analysis for Hap Seng Consolidated Berhad

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was MYR0.30 in 2015, and the most recent fiscal year payment was MYR0.20. The dividend has shrunk at around 4.0% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Hap Seng Consolidated Berhad's earnings per share has shrunk at 13% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Hap Seng Consolidated Berhad's payments, as there could be some issues with sustaining them into the future. The track record isn't great, and the payments are a bit high to be considered sustainable. We don't think Hap Seng Consolidated Berhad is a great stock to add to your portfolio if income is your focus.

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. Taking the debate a bit further, we've identified 2 warning signs for Hap Seng Consolidated Berhad that investors need to be conscious of moving forward. Is Hap Seng Consolidated Berhad not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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