SHL Consolidated Bhd's (KLSE:SHL) Upcoming Dividend Will Be Larger Than Last Year's

SHL Consolidated Bhd. (KLSE:SHL) has announced that it will be increasing its dividend from last year's comparable payment on the 21st of October to MYR0.18. This will take the annual payment to 6.3% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for SHL Consolidated Bhd

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

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, SHL Consolidated Bhd's dividend was only 52% of earnings, however it was paying out 614% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

If the trend of the last few years continues, EPS will grow by 8.0% over the next 12 months. If the dividend continues on this path, the payout ratio could be 44% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was MYR0.14 in 2014, and the most recent fiscal year payment was MYR0.18. This means that it has been growing its distributions at 2.5% per annum over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

We Could See SHL Consolidated Bhd's Dividend Growing

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see that SHL Consolidated Bhd has been growing its earnings per share at 8.0% a year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

Our Thoughts On SHL Consolidated Bhd's Dividend

Overall, we always like to see the dividend being raised, but we don't think SHL Consolidated Bhd will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think SHL Consolidated Bhd is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for SHL Consolidated Bhd that you should be aware of before investing. Is SHL Consolidated Bhd not quite the opportunity you were looking for? Why not check out our selection of top 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.