Is It Worth Considering Sunway Construction Group Berhad (KLSE:SUNCON) For Its Upcoming Dividend?

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Sunway Construction Group Berhad (KLSE:SUNCON) is about to go ex-dividend in just three days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Sunway Construction Group Berhad's shares on or after the 13th of March will not receive the dividend, which will be paid on the 10th of April.

The company's next dividend payment will be RM00.025 per share, on the back of last year when the company paid a total of RM0.09 to shareholders. Calculating the last year's worth of payments shows that Sunway Construction Group Berhad has a trailing yield of 1.9% on the current share price of RM04.42. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Sunway Construction Group Berhad

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Sunway Construction Group Berhad is paying out an acceptable 59% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Sunway Construction Group Berhad generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 16% of its cash flow last year.

It's positive to see that Sunway Construction Group Berhad's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Sunway Construction Group Berhad earnings per share are up 7.7% per annum over the last five years. Decent historical earnings per share growth suggests Sunway Construction Group Berhad has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, nine years ago, Sunway Construction Group Berhad has lifted its dividend by approximately 8.7% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Should investors buy Sunway Construction Group Berhad for the upcoming dividend? Earnings per share growth has been modest and Sunway Construction Group Berhad paid out over half of its profits and less than half of its free cash flow, although both payout ratios are within normal limits. To summarise, Sunway Construction Group Berhad looks okay on this analysis, although it doesn't appear a stand-out opportunity.

On that note, you'll want to research what risks Sunway Construction Group Berhad is facing. Every company has risks, and we've spotted 1 warning sign for Sunway Construction Group Berhad you should know about.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.