Sungei Bagan Rubber Company (Malaya) Berhad (KLSE:SBAGAN) Is Due To Pay A Dividend Of MYR0.07

Sungei Bagan Rubber Company (Malaya) Berhad's (KLSE:SBAGAN) investors are due to receive a payment of MYR0.07 per share on 6th of January. Including this payment, the dividend yield on the stock will be 2.2%, which is a modest boost for shareholders' returns.

Our analysis indicates that SBAGAN is potentially undervalued!

Sungei Bagan Rubber Company (Malaya) Berhad's Distributions May Be Difficult To Sustain

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Even though Sungei Bagan Rubber Company (Malaya) Berhad isn't generating a profit, it is generating healthy free cash flows that easily cover the dividend. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.

Over the next year, EPS could expand by 30.9% if recent trends continue. We like to see the company moving towards profitability, but this probably won't be enough for it to post positive net income this year. The healthy cash flows are definitely as good sign, though so we wouldn't panic just yet, especially with the earnings growing.

Sungei Bagan Rubber Company (Malaya) Berhad Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2012, the dividend has gone from MYR0.02 total annually to MYR0.07. This means that it has been growing its distributions at 13% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

The Company Could Face Some Challenges Growing The Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that Sungei Bagan Rubber Company (Malaya) Berhad has grown earnings per share at 31% per year over the past five years. While the company is not yet turning a profit, it is growing at a good rate. If the company can turn a profit relatively soon, we can see this becoming a reliable income stock.

Our Thoughts On Sungei Bagan Rubber Company (Malaya) Berhad's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Sungei Bagan Rubber Company (Malaya) Berhad's payments, as there could be some issues with sustaining them into the future. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 2 warning signs for Sungei Bagan Rubber Company (Malaya) Berhad that investors should take into consideration. 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.