Sime Darby Plantation Berhad (KLSE:SIMEPLT) Will Pay A Smaller Dividend Than Last Year

The board of Sime Darby Plantation Berhad (KLSE:SIMEPLT) has announced it will be reducing its dividend by 68% from last year's payment of MYR0.10 on the 17th of November, with shareholders receiving MYR0.0325. This means that the annual payment will be 3.7% of the current stock price, which is in line with the average for the industry.

Check out our latest analysis for Sime Darby Plantation Berhad

Sime Darby Plantation Berhad's Payment Has Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable. Sime Darby Plantation Berhad was earning enough to cover the previous dividend, but it was paying out quite a large proportion of its free cash flows. The business is earning enough to make the dividend feasible, but the cash payout ratio of 83% indicates it is more focused on returning cash to shareholders than growing the business.

Looking forward, earnings per share is forecast to rise by 8.8% over the next year. If the dividend continues on this path, the payout ratio could be 45% by next year, which we think can be pretty sustainable going forward.

Sime Darby Plantation Berhad's Dividend Has Lacked Consistency

Sime Darby Plantation 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 dividend has gone from an annual total of MYR0.07 in 2018 to the most recent total annual payment of MYR0.16. This means that it has been growing its distributions at 18% 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.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Sime Darby Plantation Berhad has seen earnings per share falling at 4.4% per year over the last five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 2 warning signs for Sime Darby Plantation Berhad that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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