Sime Darby Plantation Berhad (KLSE:SIMEPLT) Has Announced That Its Dividend Will Be Reduced To MYR0.0325

Sime Darby Plantation Berhad's (KLSE:SIMEPLT) dividend is being reduced from last year's payment covering the same period to MYR0.0325 on the 17th of November. This payment takes the dividend yield to 1.5%, which only provides a modest boost to overall returns.

See our latest analysis for Sime Darby Plantation Berhad

Sime Darby Plantation Berhad's Earnings Easily Cover The Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. The last dividend was quite easily covered by Sime Darby Plantation Berhad's earnings. This means that a large portion of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 13.4% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 43%, which is in the range that makes us comfortable with the sustainability of the dividend.

Sime Darby Plantation Berhad's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2017, the dividend has gone from MYR0.07 total annually to MYR0.065. Doing the maths, this is a decline of about 1.2% per year. A company that decreases its dividend over time generally isn't what we are looking for.

Sime Darby Plantation Berhad May Find It Hard To Grow The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Over the past five years, it looks as though Sime Darby Plantation Berhad's EPS has declined at around 4.4% a year. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

Our Thoughts On Sime Darby Plantation Berhad's Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Sime Darby Plantation Berhad that you should be aware of before investing. Is Sime Darby Plantation 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.