Is Spritzer Bhd (KLSE:SPRITZER) A Great Dividend Stock?
Today we'll take a closer look at Spritzer Bhd (KLSE:SPRITZER) from a dividend investor's perspective. Owning a strong business and reinvesting the dividends is widely seen as an attractive way of growing your wealth. Yet sometimes, investors buy a stock for its dividend and lose money because the share price falls by more than they earned in dividend payments.
A 2.2% yield is nothing to get excited about, but investors probably think the long payment history suggests Spritzer Bhd has some staying power. Some simple analysis can reduce the risk of holding Spritzer Bhd for its dividend, and we'll focus on the most important aspects below.
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Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. Looking at the data, we can see that 34% of Spritzer Bhd's profits were paid out as dividends in the last 12 months. A medium payout ratio strikes a good balance between paying dividends, and keeping enough back to invest in the business. Plus, there is room to increase the payout ratio over time.
Another important check we do is to see if the free cash flow generated is sufficient to pay the dividend. Of the free cash flow it generated last year, Spritzer Bhd paid out 45% as dividends, suggesting the dividend is affordable. It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
While the above analysis focuses on dividends relative to a company's earnings, we do note Spritzer Bhd's strong net cash position, which will let it pay larger dividends for a time, should it choose.
Consider getting our latest analysis on Spritzer Bhd's financial position here.
One of the major risks of relying on dividend income, is the potential for a company to struggle financially and cut its dividend. Not only is your income cut, but the value of your investment declines as well - nasty. For the purpose of this article, we only scrutinise the last decade of Spritzer Bhd's dividend payments. The dividend has been cut on at least one occasion historically. During the past 10-year period, the first annual payment was RM0.03 in 2010, compared to RM0.04 last year. This works out to be a compound annual growth rate (CAGR) of approximately 6.1% a year over that time. The dividends haven't grown at precisely 6.1% every year, but this is a useful way to average out the historical rate of growth.
Dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.
Dividend Growth Potential
With a relatively unstable dividend, it's even more important to see if earnings per share (EPS) are growing. Why take the risk of a dividend getting cut, unless there's a good chance of bigger dividends in future? It's not great to see that Spritzer Bhd's have fallen at approximately 5.0% over the past five years. A modest decline in earnings per share is not great to see, but it doesn't automatically make a dividend unsustainable. Still, we'd vastly prefer to see EPS growth when researching dividend stocks.
When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. It's great to see that Spritzer Bhd is paying out a low percentage of its earnings and cash flow. Second, earnings per share have been in decline, and its dividend has been cut at least once in the past. In sum, we find it hard to get excited about Spritzer Bhd from a dividend perspective. It's not that we think it's a bad business; just that there are other companies that perform better on these criteria.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Spritzer Bhd that you should be aware of before investing.
If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.
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This article by Simply Wall St is general in nature. 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.
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Spritzer Bhd, an investment holding company, manufactures and sells bottled water in Malaysia.
Excellent balance sheet with proven track record.