Interested In SD Guthrie Berhad's (KLSE:SDG) Upcoming RM00.0775 Dividend? You Have Three Days Left

Readers hoping to buy SD Guthrie Berhad (KLSE:SDG) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a 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. Accordingly, SD Guthrie Berhad investors that purchase the stock on or after the 16th of October will not receive the dividend, which will be paid on the 31st of October.

The company's next dividend payment will be RM00.0775 per share, on the back of last year when the company paid a total of RM0.16 to shareholders. Calculating the last year's worth of payments shows that SD Guthrie Berhad has a trailing yield of 3.1% on the current share price of RM05.34. 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 check whether the dividend payments are covered, and if earnings are growing.

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Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. SD Guthrie Berhad is paying out an acceptable 52% of its profit, a common payout level among most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. SD Guthrie Berhad paid out more free cash flow than it generated - 115%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

While SD Guthrie Berhad's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to SD Guthrie Berhad's ability to maintain its dividend.

Check out our latest analysis for SD Guthrie Berhad

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see SD Guthrie Berhad's earnings have been skyrocketing, up 84% per annum for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. SD Guthrie Berhad has delivered 11% dividend growth per year on average over the past eight years. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

The Bottom Line

Should investors buy SD Guthrie Berhad for the upcoming dividend? It's good to see that earnings per share are growing and that the company's payout ratio is within a normal range for most businesses. However we're somewhat concerned that it paid out 115% of its cashflow, which is uncomfortably high. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

If you're not too concerned about SD Guthrie Berhad's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. For example, SD Guthrie Berhad has 2 warning signs (and 1 which can't be ignored) we think you should know about.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.