SCGM Bhd (KLSE:SCGM) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

SCGM Bhd (KLSE:SCGM) is about to trade ex-dividend in the next four days. You can purchase shares before the 6th of January in order to receive the dividend, which the company will pay on the 22nd of January.

SCGM Bhd's next dividend payment will be RM0.015 per share. Last year, in total, the company distributed RM0.036 to shareholders. Based on the last year's worth of payments, SCGM Bhd stock has a trailing yield of around 1.6% on the current share price of MYR2.19. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for SCGM Bhd

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. SCGM Bhd paid out a comfortable 37% of its profit last year. A useful secondary check can be to evaluate whether SCGM Bhd generated enough free cash flow to afford its dividend. It paid out 16% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that SCGM Bhd's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at SCGM Bhd, with earnings per share up 9.2% on average over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, SCGM Bhd has lifted its dividend by approximately 9.1% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Is SCGM Bhd an attractive dividend stock, or better left on the shelf? Earnings per share have been growing moderately, and SCGM Bhd is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but SCGM Bhd is being conservative with its dividend payouts and could still perform reasonably over the long run. It's a promising combination that should mark this company worthy of closer attention.

While it's tempting to invest in SCGM Bhd for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 3 warning signs for SCGM Bhd and you should be aware of them before buying any shares.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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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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