Sunway Construction Group Berhad (KLSE:SUNCON) Is Increasing Its Dividend To MYR0.035

Sunway Construction Group Berhad (KLSE:SUNCON) has announced that it will be increasing its dividend from last year's comparable payment on the 26th of September to MYR0.035. Despite this raise, the dividend yield of 1.7% is only a modest boost to shareholder returns.

View our latest analysis for Sunway Construction Group Berhad

Sunway Construction Group Berhad's Earnings Easily Cover The Distributions

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Before making this announcement, Sunway Construction Group Berhad was earning enough to cover the dividend, but it wasn't generating any free cash flows. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

The next year is set to see EPS grow by 86.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 30% by next year, which is in a pretty sustainable range.

Sunway Construction Group Berhad's Dividend Has Lacked Consistency

It's comforting to see that Sunway Construction Group Berhad has been paying a dividend for a number of years now, however it has been cut at least once in that time. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The annual payment during the last 8 years was MYR0.04 in 2016, and the most recent fiscal year payment was MYR0.07. This works out to be a compound annual growth rate (CAGR) of approximately 7.2% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Sunway Construction Group Berhad May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Earnings has been rising at 2.6% per annum over the last five years, which admittedly is a bit slow. Sunway Construction Group Berhad is struggling to find viable investments, so it is returning more to shareholders. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

Our Thoughts On Sunway Construction Group Berhad's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Sunway Construction Group Berhad is a great stock to add to your portfolio if income is your focus.

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. For example, we've picked out 1 warning sign for Sunway Construction Group Berhad that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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