Sime Darby Berhad (KLSE:SIME) Is Increasing Its Dividend To MYR0.10

Sime Darby Berhad (KLSE:SIME) has announced that it will be increasing its dividend from last year's comparable payment on the 29th of September to MYR0.10. Based on this payment, the dividend yield for the company will be 5.9%, which is fairly typical for the industry.

View our latest analysis for Sime Darby Berhad

Sime Darby Berhad's Dividend Is Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much. The last payment was quite easily covered by earnings, but it made up 587% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Looking forward, earnings per share is forecast to fall by 4.7% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 59%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2013, the dividend has gone from MYR0.35 total annually to MYR0.13. Doing the maths, this is a decline of about 9.4% per year. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Looks Likely To Grow

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Sime Darby Berhad has impressed us by growing EPS at 17% per year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

Our Thoughts On Sime Darby Berhad's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Sime Darby Berhad's payments are rock solid. While Sime Darby Berhad is earning enough to cover the payments, the cash flows are lacking. We don't think Sime Darby Berhad is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Sime Darby Berhad that investors should take into consideration. 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.