SD Guthrie Berhad (KLSE:SDG) Has Announced That It Will Be Increasing Its Dividend To MYR0.1171

SD Guthrie Berhad (KLSE:SDG) has announced that it will be increasing its dividend from last year's comparable payment on the 23rd of May to MYR0.1171. This makes the dividend yield about the same as the industry average at 3.3%.

Check out our latest analysis for SD Guthrie Berhad

SD Guthrie Berhad's Future Dividend Projections Appear Well Covered By Earnings

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, SD Guthrie Berhad's dividend was only 52% of earnings, however it was paying out 155% of free cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

EPS is set to fall by 19.1% over the next 12 months. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 67%, which is comfortable for the company to continue in the future.

SD Guthrie Berhad's Dividend Has Lacked Consistency

SD Guthrie Berhad has been paying dividends for a while, but the track record isn't stellar. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The annual payment during the last 7 years was MYR0.07 in 2018, and the most recent fiscal year payment was MYR0.164. This means that it has been growing its distributions at 13% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. SD Guthrie Berhad has seen EPS rising for the last five years, at 78% per annum. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

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. To that end, SD Guthrie Berhad has 2 warning signs (and 1 which can't be ignored) we think you should know about. Is SD Guthrie Berhad not quite the opportunity you were looking for? Why not check out 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.