Investors In Classic Scenic Berhad (KLSE:CSCENIC) Should Consider This, First

Is Classic Scenic Berhad (KLSE:CSCENIC) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. If you are hoping to live on your dividends, it's important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you'll find our analysis useful.

In this case, Classic Scenic Berhad likely looks attractive to investors, given its 5.8% dividend yield and a payment history of over ten years. We'd guess that plenty of investors have purchased it for the income. That said, the recent jump in the share price will make Classic Scenic Berhad's dividend yield look smaller, even though the company prospects could be improving. Some simple research can reduce the risk of buying Classic Scenic Berhad for its dividend - read on to learn more.

Explore this interactive chart for our latest analysis on Classic Scenic Berhad!

Payout ratios

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. Classic Scenic Berhad paid out 144% of its profit as dividends, over the trailing twelve month period. A payout ratio above 100% is definitely an item of concern, unless there are some other circumstances that would justify it.

We also measure dividends paid against a company's levered free cash flow, to see if enough cash was generated to cover the dividend. With a cash payout ratio of 107%, Classic Scenic Berhad's dividend payments are poorly covered by cash flow. Cash is slightly more important than profit from a dividend perspective, but given Classic Scenic Berhad's payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.

With a strong net cash balance, Classic Scenic Berhad investors may not have much to worry about in the near term from a dividend perspective.

Consider getting our latest analysis on Classic Scenic Berhad's financial position here.

Dividend Volatility

Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. For the purpose of this article, we only scrutinise the last decade of Classic Scenic Berhad'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 RM0.07 in 2010, compared to RM0.05 last year. The dividend has shrunk at around 3.3% a year during that period. Classic Scenic Berhad's dividend hasn't shrunk linearly at 3.3% per annum, but the CAGR is a useful estimate of the historical rate of change.

We struggle to make a case for buying Classic Scenic Berhad for its dividend, given that payments have shrunk over the past 10 years.

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? Classic Scenic Berhad's earnings per share have shrunk at 16% a year over the past five years. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Classic Scenic Berhad's earnings per share, which support the dividend, have been anything but stable.

Conclusion

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. Classic Scenic Berhad paid out almost all of its cash flow and profit as dividends, leaving little to reinvest in the business. Earnings per share are down, and Classic Scenic Berhad's dividend has been cut at least once in the past, which is disappointing. In this analysis, Classic Scenic Berhad doesn't shape up too well as a dividend stock. We'd find it hard to look past the flaws, and would not be inclined to think of it as a reliable dividend-payer.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 4 warning signs for Classic Scenic Berhad (1 doesn't sit too well with us!) that you should be aware of before investing.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield 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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