It Might Not Be A Great Idea To Buy Scicom (MSC) Berhad (KLSE:SCICOM) For Its Next Dividend

It looks like Scicom (MSC) Berhad (KLSE:SCICOM) is about to go ex-dividend in the next 3 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase Scicom (MSC) Berhad's shares on or after the 12th of September, you won't be eligible to receive the dividend, when it is paid on the 30th of September.

The company's next dividend payment will be RM00.0125 per share, on the back of last year when the company paid a total of RM0.05 to shareholders. Last year's total dividend payments show that Scicom (MSC) Berhad has a trailing yield of 6.2% on the current share price of RM00.81. If you buy this business for its dividend, you should have an idea of whether Scicom (MSC) Berhad's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Scicom (MSC) Berhad

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Last year, Scicom (MSC) Berhad paid out 95% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. 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. Over the last year it paid out 60% of its free cash flow as dividends, within the usual range for most companies.

It's good to see that while Scicom (MSC) Berhad's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.

Click here to see how much of its profit Scicom (MSC) Berhad paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Scicom (MSC) Berhad, with earnings per share up 3.8% on average over the last five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Scicom (MSC) Berhad has increased its dividend at approximately 4.1% 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.

To Sum It Up

Is Scicom (MSC) Berhad worth buying for its dividend? While earnings per share have been growing slowly, Scicom (MSC) Berhad is paying out an uncomfortably high percentage of its earnings. However it did pay out a lower percentage of its cashflow. It's not that we think Scicom (MSC) Berhad is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that being said, if you're still considering Scicom (MSC) Berhad as an investment, you'll find it beneficial to know what risks this stock is facing. In terms of investment risks, we've identified 2 warning signs with Scicom (MSC) Berhad and understanding them should be part of your investment process.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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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.