The board of Sime Darby Plantation Berhad (KLSE:SIMEPLT) has announced that it will be increasing its dividend on the 17th of May to RM0.12. This takes the dividend yield to 4.4%, which shareholders will be pleased with.
Sime Darby Plantation Berhad's Earnings Easily Cover the Distributions
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last dividend was quite comfortably covered by Sime Darby Plantation Berhad's earnings, but it was a bit tighter on the cash flow front. The business is earning enough to make the dividend feasible, but the cash payout ratio of 86% indicates it is more focused on returning cash to shareholders than growing the business.
Over the next year, EPS is forecast to fall by 15.1%. Assuming the dividend continues along recent trends, we believe the payout ratio could be 71%, which we are pretty comfortable with and we think is feasible on an earnings basis.
Sime Darby Plantation Berhad's Dividend Has Lacked Consistency
Looking back, the company hasn't been paying the most consistent dividend, but with such a short dividend history it could be too early to draw solid conclusions. Since 2018, the first annual payment was RM0.07, compared to the most recent full-year payment of RM0.25. This implies that the company grew its distributions at a yearly rate of about 37% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
Dividend Growth Is Doubtful
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's not great to see that Sime Darby Plantation Berhad's earnings per share has fallen at approximately 9.0% per year over the past five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.
Overall, we always like to see the dividend being raised, but we don't think Sime Darby Plantation Berhad will make a great income stock. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Sime Darby Plantation Berhad has been making. We don't think Sime Darby Plantation 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 2 warning signs for Sime Darby Plantation Berhad (1 can't be ignored!) 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.
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.