SLP Resources Berhad (KLSE:SLP) Is Reducing Its Dividend To MYR0.0125

SLP Resources Berhad (KLSE:SLP) has announced it will be reducing its dividend payable on the 5th of October to MYR0.0125, which is 17% lower than what investors received last year for the same period. The dividend yield of 6.4% is still a nice boost to shareholder returns, despite the cut.

See our latest analysis for SLP Resources Berhad

SLP Resources Berhad's Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

Earnings per share is forecast to rise by 55.9% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 87% - on the higher side, but we wouldn't necessarily say this is unsustainable.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2013, the dividend has gone from MYR0.0167 total annually to MYR0.055. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. 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 Come By

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Over the past five years, it looks as though SLP Resources Berhad's EPS has declined at around 8.3% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

We're Not Big Fans Of SLP Resources Berhad's Dividend

In summary, it's not great to see that the dividend is being cut, but it is probably understandable given that the current payment level was quite high. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. Overall, this doesn't get us very excited from an income standpoint.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, SLP Resources Berhad has 4 warning signs (and 1 which is significant) we think you should know about. Is SLP Resources Berhad not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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