The board of Sime Darby Berhad (KLSE:SIME) has announced that it will pay a dividend on the 30th of September, with investors receiving MYR0.10 per share. This payment means that the dividend yield will be 5.3%, which is around the industry average.
See our latest analysis for Sime Darby Berhad
Sime Darby Berhad's Earnings Easily Cover The Distributions
We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, Sime Darby Berhad's dividend was making up a very large proportion of earnings, and the company was also not generating any cash flow to offset this. Generally, we think that this would be a risky long term practice.
Looking forward, earnings per share is forecast to rise by 44.4% over the next year. If the dividend continues on this path, the payout ratio could be 42% by next year, which we think can be pretty sustainable going forward.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the dividend has gone from MYR0.34 total annually to MYR0.13. Doing the maths, this is a decline of about 9.2% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
The Dividend Has Growth Potential
Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Sime Darby Berhad has impressed us by growing EPS at 5.8% per year over the past five years. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.
Our Thoughts On Sime Darby Berhad's Dividend
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Sime Darby Berhad's payments, as there could be some issues with sustaining them into the future. While Sime Darby Berhad is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 2 warning signs for Sime Darby Berhad that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.
About KLSE:SIME
Sime Darby Berhad
An investment holding company, operates in the industrial, motors, and other businesses in Malaysia, China, Australia, and internationally.
Very undervalued with adequate balance sheet.
