Looking For Steady Income For Your Dividend Portfolio? Is Mah Sing Group Berhad (KLSE:MAHSING) A Good Fit?

Dividend paying stocks like Mah Sing Group Berhad (KLSE:MAHSING) tend to be popular with investors, and for good reason - some research suggests a significant amount of all stock market returns come from reinvested dividends. If you are hoping to live on the income from dividends, it's important to be a lot more stringent with your investments than the average punter.

With Mah Sing Group Berhad yielding 4.3% and having paid a dividend for over 10 years, many investors likely find the company quite interesting. We'd guess that plenty of investors have purchased it for the income. The company also returned around 28% of its market capitalisation to shareholders in the form of stock buybacks over the past year. Some simple research can reduce the risk of buying Mah Sing Group Berhad for its dividend - read on to learn more.

Explore this interactive chart for our latest analysis on Mah Sing Group Berhad!

Payout ratios

Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. Mah Sing Group Berhad paid out 183% of its profit as dividends, over the trailing twelve month period. Unless there are extenuating circumstances, from the perspective of an investor who hopes to own the company for many years, a payout ratio of above 100% is definitely a concern.

In addition to comparing dividends against profits, we should inspect whether the company generated enough cash to pay its dividend. Mah Sing Group Berhad paid out a conservative 40% of its free cash flow as dividends last year. It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Mah Sing Group Berhad fortunately did generate enough cash to fund its dividend. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.

With a strong net cash balance, Mah Sing Group Berhad investors may not have much to worry about in the near term from a dividend perspective.

We update our data on Mah Sing Group Berhad every 24 hours, so you can always get our latest analysis of its financial health, here.

Dividend Volatility

Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. For the purpose of this article, we only scrutinise the last decade of Mah Sing Group Berhad's dividend payments. The dividend has been cut on at least one occasion historically. During the past 10-year period, the first annual payment was RM0.04 in 2011, compared to RM0.03 last year. The dividend has shrunk at a rate of less than 1% a year over this period.

We struggle to make a case for buying Mah Sing Group Berhad for its dividend, given that payments have shrunk over the past 10 years.

Dividend Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share (EPS) are growing. Why take the risk of a dividend getting cut, unless there's a good chance of bigger dividends in future? Mah Sing Group Berhad's earnings per share have shrunk at 35% a year over the past five years. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Mah Sing Group Berhad's earnings per share, which support the dividend, have been anything but stable.

Conclusion

To summarise, shareholders should always check that Mah Sing Group Berhad's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. We're a bit uncomfortable with its high payout ratio, although at least the dividend was covered by free cash flow. Earnings per share have been falling, and the company has cut its dividend at least once in the past. From a dividend perspective, this is a cause for concern. Overall, Mah Sing Group Berhad falls short in several key areas here. Unless the investor has strong grounds for an alternative conclusion, we find it hard to get interested in a dividend stock with these characteristics.

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. For instance, we've picked out 3 warning signs for Mah Sing Group Berhad that investors should take into consideration.

If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.

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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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