Sime Darby Berhad (KLSE:SIME) Is Reducing Its Dividend To MYR0.075

Sime Darby Berhad (KLSE:SIME) has announced that on 30th of September, it will be paying a dividend ofMYR0.075, which a reduction from last year's comparable dividend. However, the dividend yield of 4.9% still remains in a typical range for the industry.

Check out our latest analysis for Sime Darby Berhad

Sime Darby Berhad's Payment Has Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. The last payment was quite easily covered by earnings, but it made up 478% of cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

The next year is set to see EPS grow by 14.2%. If the dividend continues on this path, the payout ratio could be 46% by next year, which we think can be pretty sustainable going forward.

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 MYR0.32 in 2012, and the most recent fiscal year payment was MYR0.115. This works out to be a decline of approximately 9.7% per year over that time. 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 13% per year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

Our Thoughts On Sime Darby Berhad's Dividend

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. While Sime Darby Berhad is earning enough to cover the payments, the cash flows are lacking. 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 1 warning sign for Sime Darby Berhad that investors should know about before committing capital to this stock. Is Sime Darby Berhad not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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