Scicom (MSC) Berhad (KLSE:SCICOM) Is Paying Out A Dividend Of MYR0.02

Scicom (MSC) Berhad (KLSE:SCICOM) will pay a dividend of MYR0.02 on the 22nd of September. The dividend yield will be 7.0% based on this payment which is still above the industry average.

Check out our latest analysis for Scicom (MSC) Berhad

Scicom (MSC) Berhad's Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Scicom (MSC) Berhad's was paying out quite a large proportion of earnings and 77% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but we don't think that there are necessarily signs that the dividend might be unsustainable.

Looking forward, earnings per share is forecast to rise by 34.9% over the next year. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 67% which would be quite comfortable going to take the dividend forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was MYR0.025 in 2013, and the most recent fiscal year payment was MYR0.08. This implies that the company grew its distributions at a yearly rate of about 12% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Scicom (MSC) Berhad hasn't seen much change in its earnings per share over the last five years. Slow growth and a high payout ratio could mean that Scicom (MSC) Berhad has maxed out the amount that it has been able to pay to shareholders. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Scicom (MSC) Berhad's payments, as there could be some issues with sustaining them into the future. The track record isn't great, and the payments are a bit high to be considered sustainable. We don't think Scicom (MSC) Berhad is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 2 warning signs for Scicom (MSC) Berhad that investors need to be conscious of moving forward. Is Scicom (MSC) Berhad not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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