Sunway Construction Group Berhad (KLSE:SUNCON) Will Pay A Dividend Of MYR0.03

The board of Sunway Construction Group Berhad (KLSE:SUNCON) has announced that it will pay a dividend of MYR0.03 per share on the 27th of September. This means that the annual payment will be 3.0% of the current stock price, which is in line with the average for the industry.

See our latest analysis for Sunway Construction Group Berhad

Sunway Construction Group 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. Prior to this announcement, Sunway Construction Group Berhad's earnings easily covered the dividend, but free cash flows were negative. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Over the next year, EPS is forecast to expand by 31.5%. If the dividend continues on this path, the payout ratio could be 43% by next year, which we think can be pretty sustainable going forward.

Sunway Construction Group Berhad's Dividend Has Lacked Consistency

Sunway Construction Group Berhad has been paying dividends for a while, but the track record isn't stellar. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2016, the annual payment back then was MYR0.04, compared to the most recent full-year payment of MYR0.055. This works out to be a compound annual growth rate (CAGR) of approximately 4.7% a year over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Although it's important to note that Sunway Construction Group Berhad's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While Sunway Construction Group Berhad is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. To that end, Sunway Construction Group Berhad has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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