There's A Lot To Like About Selangor Dredging Berhad's (KLSE:SDRED) Upcoming RM00.03 Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Selangor Dredging Berhad (KLSE:SDRED) is about to trade ex-dividend in the next three days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase Selangor Dredging Berhad's shares on or after the 3rd of October will not receive the dividend, which will be paid on the 14th of October.

The company's upcoming dividend is RM00.03 a share, following on from the last 12 months, when the company distributed a total of RM0.03 per share to shareholders. Based on the last year's worth of payments, Selangor Dredging Berhad has a trailing yield of 4.5% on the current stock price of RM00.66. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Selangor Dredging Berhad can afford its dividend, and if the dividend could grow.

See our latest analysis for Selangor Dredging Berhad

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Selangor Dredging Berhad paid out a comfortable 50% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Luckily it paid out just 20% of its free cash flow last year.

It's positive to see that Selangor Dredging Berhad'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 how much of its profit Selangor Dredging Berhad paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall far enough, the company could be forced to cut its dividend. That explains why we're not overly excited about Selangor Dredging Berhad's flat earnings over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. Recent earnings growth has been limited. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Selangor Dredging Berhad's dividend payments are effectively flat on where they were 10 years ago.

To Sum It Up

Has Selangor Dredging Berhad got what it takes to maintain its dividend payments? Earnings per share have been flat over this time, but we're intrigued to see that Selangor Dredging Berhad is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. Generally we like to see both low payout ratios and strong earnings per share growth, but Selangor Dredging Berhad is halfway there. There's a lot to like about Selangor Dredging Berhad, and we would prioritise taking a closer look at it.

In light of that, while Selangor Dredging Berhad has an appealing dividend, it's worth knowing the risks involved with this stock. In terms of investment risks, we've identified 2 warning signs with Selangor Dredging Berhad and understanding them should be part of your investment process.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.