Do These 3 Checks Before Buying Sunway Construction Group Berhad (KLSE:SUNCON) For Its Upcoming Dividend

Sunway Construction Group Berhad (KLSE:SUNCON) is about to trade ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 12th of March will not receive this dividend, which will be paid on the 7th of April.

The upcoming dividend for Sunway Construction Group Berhad will put a total of RM0.028 per share in shareholders' pockets, up from last year's total dividends of RM0.025. If you buy this business for its dividend, you should have an idea of whether Sunway Construction Group Berhad's dividend is reliable and sustainable. So we need to investigate whether Sunway Construction Group Berhad can afford its dividend, and if the dividend could grow.

View our latest analysis for Sunway Construction Group Berhad

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Sunway Construction Group Berhad paid out 71% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Dividends consumed 68% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Sunway Construction Group Berhad's earnings per share have fallen at approximately 11% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Sunway Construction Group Berhad's dividend payments are effectively flat on where they were five years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.

To Sum It Up

Is Sunway Construction Group Berhad an attractive dividend stock, or better left on the shelf? It's never good to see earnings per share shrinking, but at least the dividend payout ratios appear reasonable. We're aware though that if earnings continue to decline, the dividend could be at risk. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

With that in mind though, if the poor dividend characteristics of Sunway Construction Group Berhad don't faze you, it's worth being mindful of the risks involved with this business. Our analysis shows 3 warning signs for Sunway Construction Group Berhad and you should be aware of them before buying any shares.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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