Sarawak Oil Palms Berhad (KLSE:SOP) Will Pay A Smaller Dividend Than Last Year

Sarawak Oil Palms Berhad (KLSE:SOP) has announced that on 18th of July, it will be paying a dividend ofMYR0.04, which a reduction from last year's comparable dividend. However, the dividend yield of 2.7% still remains in a typical range for the industry.

We've discovered 2 warning signs about Sarawak Oil Palms Berhad. View them for free.

Sarawak Oil Palms Berhad's Projected Earnings Seem Likely To Cover Future Distributions

Solid dividend yields are great, but they only really help us if the payment is sustainable. Before making this announcement, Sarawak Oil Palms Berhad was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

Looking forward, earnings per share is forecast to fall by 4.9% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 33%, which we are pretty comfortable with and we think is feasible on an earnings basis.

See our latest analysis for Sarawak Oil Palms Berhad

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of MYR0.0333 in 2015 to the most recent total annual payment of MYR0.08. This means that it has been growing its distributions at 9.2% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Sarawak Oil Palms Berhad might have put its house in order since then, but we remain cautious.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Sarawak Oil Palms Berhad has impressed us by growing EPS at 25% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

Sarawak Oil Palms Berhad Looks Like A Great Dividend Stock

It is generally not great to see the dividend being cut, but we don't think this should happen much if at all in the future given that Sarawak Oil Palms Berhad has the makings of a solid income stock moving forward. Reducing the amount it is paying as a dividend can protect the company's balance sheet, keeping the dividend sustainable for longer. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 2 warning signs for Sarawak Oil Palms Berhad (of which 1 is a bit unpleasant!) you should know about. Is Sarawak Oil Palms Berhad not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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