Scicom (MSC) Berhad's (KLSE:SCICOM) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Scicom (MSC) Berhad (KLSE:SCICOM) has announced that it will be paying its dividend of MYR0.03 on the 30th of December, an increased payment from last year's comparable dividend. This will take the annual payment to 5.4% of the stock price, which is above what most companies in the industry pay.

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Scicom (MSC) Berhad's Future Dividend Projections Appear Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before this announcement, Scicom (MSC) Berhad was paying out 93% of earnings, but a comparatively small 43% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

EPS is set to grow by 2.1% over the next year if recent trends continue. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 89%, which is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

View our latest analysis for Scicom (MSC) Berhad

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 MYR0.075 in 2015, and the most recent fiscal year payment was MYR0.055. The dividend has shrunk at around 3.1% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.

Scicom (MSC) Berhad May Find It Hard To Grow The Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Earnings have grown at around 2.1% a year for the past five years, which isn't massive but still better than seeing them shrink. Earnings are not growing quickly at all, and the company is paying out most of its profit as dividends. That's fine as far as it goes, but we're less enthusiastic as this often signals that the dividend is likely to grow slower in the future.

Our Thoughts On Scicom (MSC) Berhad's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Scicom (MSC) Berhad's payments are rock solid. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. To that end, Scicom (MSC) Berhad has 3 warning signs (and 1 which is a bit unpleasant) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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