Why It Might Not Make Sense To Buy Shangri-La Hotels (Malaysia) Berhad (KLSE:SHANG) For Its Upcoming Dividend

Shangri-La Hotels (Malaysia) Berhad (KLSE:SHANG) is about to trade ex-dividend in the next 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase Shangri-La Hotels (Malaysia) Berhad's shares before the 16th of October in order to be eligible for the dividend, which will be paid on the 8th of November.

The company's next dividend payment will be RM00.03 per share, on the back of last year when the company paid a total of RM0.06 to shareholders. Based on the last year's worth of payments, Shangri-La Hotels (Malaysia) Berhad has a trailing yield of 2.9% on the current stock price of RM02.05. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Shangri-La Hotels (Malaysia) Berhad can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Shangri-La Hotels (Malaysia) Berhad

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Shangri-La Hotels (Malaysia) Berhad paid out a disturbingly high 242% of its profit as dividends last year, which makes us concerned there's something we don't fully understand in the business.

Click here to see how much of its profit Shangri-La Hotels (Malaysia) Berhad paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Readers will understand then, why we're concerned to see Shangri-La Hotels (Malaysia) Berhad's earnings per share have dropped 24% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Shangri-La Hotels (Malaysia) Berhad has seen its dividend decline 7.4% per annum on average over the past 10 years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

To Sum It Up

Is Shangri-La Hotels (Malaysia) Berhad worth buying for its dividend? Not only are earnings per share shrinking, but Shangri-La Hotels (Malaysia) Berhad is paying out a disconcertingly high percentage of its profit as dividends. It's not that we hate the business, but we feel that these characeristics are not desirable for investors seeking a reliable dividend stock to own for the long term. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.

Although, if you're still interested in Shangri-La Hotels (Malaysia) Berhad and want to know more, you'll find it very useful to know what risks this stock faces. To that end, you should learn about the 2 warning signs we've spotted with Shangri-La Hotels (Malaysia) Berhad (including 1 which is significant).

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.