SHL Consolidated Bhd (KLSE:SHL) Is Paying Out A Larger Dividend Than Last Year

SHL Consolidated Bhd. (KLSE:SHL) has announced that it will be increasing its dividend from last year's comparable payment on the 26th of October to MYR0.09. This makes the dividend yield 4.5%, which is above the industry average.

Check out our latest analysis for SHL Consolidated Bhd

SHL Consolidated Bhd's Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, SHL Consolidated Bhd was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.

EPS is set to fall by 9.8% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could be 41%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the annual payment back then was MYR0.08, compared to the most recent full-year payment of MYR0.09. This works out to be a compound annual growth rate (CAGR) of approximately 1.2% a year over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

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. In the last five years, SHL Consolidated Bhd's earnings per share has shrunk at approximately 9.8% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

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. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 3 warning signs for SHL Consolidated Bhd you should be aware of, and 2 of them are potentially serious. 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.