Hap Seng Plantations Holdings Berhad's (KLSE:HSPLANT) Shareholders Will Receive A Smaller Dividend Than Last Year

The board of Hap Seng Plantations Holdings Berhad (KLSE:HSPLANT) has announced that the dividend on 21st of September will be reduced by 70% from last year's MYR0.05 to MYR0.015. The yield is still above the industry average at 6.3%.

Check out our latest analysis for Hap Seng Plantations Holdings Berhad

Hap Seng Plantations Holdings Berhad's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Hap Seng Plantations Holdings Berhad's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 464% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

Looking forward, earnings per share is forecast to rise by 50.1% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 61% which brings it into quite a comfortable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the annual payment back then was MYR0.16, compared to the most recent full-year payment of MYR0.12. This works out to be a decline of approximately 2.8% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.

Hap Seng Plantations Holdings Berhad May Find It Hard To Grow The Dividend

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 Hap Seng Plantations Holdings 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.

Hap Seng Plantations Holdings Berhad's Dividend Doesn't Look Sustainable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The payments are bit high to be considered sustainable, and the track record isn't the best. We don't think Hap Seng Plantations Holdings 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 2 warning signs for Hap Seng Plantations Holdings Berhad (of which 1 doesn't sit too well with us!) 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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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.