SHL Consolidated Bhd's (KLSE:SHL) Dividend Will Be Reduced To MYR0.12

SHL Consolidated Bhd. (KLSE:SHL) has announced that on 22nd of October, it will be paying a dividend ofMYR0.12, which a reduction from last year's comparable dividend. The dividend yield of 5.0% is still a nice boost to shareholder returns, despite the cut.

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SHL Consolidated Bhd's Payment Could Potentially Have Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last payment made up 81% of earnings, but cash flows were much higher. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Over the next year, EPS could expand by 2.5% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 74%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

See our latest analysis for SHL Consolidated Bhd

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the annual payment back then was MYR0.19, compared to the most recent full-year payment of MYR0.12. The dividend has shrunk at around 4.5% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend's Growth Prospects Are Limited

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. However, SHL Consolidated Bhd has only grown its earnings per share at 2.5% per annum over the past five years. Slow growth and a high payout ratio could mean that SHL Consolidated Bhd has maxed out the amount that it has been able to pay to shareholders. That's fine as far as it goes, but we're less enthusiastic as this often signals that the dividend is likely to grow slower in the future.

Our Thoughts On SHL Consolidated Bhd's Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for SHL Consolidated Bhd that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.