Here's Why We're Wary Of Buying Sime Darby Property Berhad's (KLSE:SIMEPROP) For Its Upcoming Dividend

It looks like Sime Darby Property Berhad (KLSE:SIMEPROP) is about to go ex-dividend in the next 4 days. If you purchase the stock on or after the 9th of December, you won't be eligible to receive this dividend, when it is paid on the 22nd of December.

Sime Darby Property Berhad's next dividend payment will be RM0.01 per share. Last year, in total, the company distributed RM0.03 to shareholders. Last year's total dividend payments show that Sime Darby Property Berhad has a trailing yield of 4.5% on the current share price of MYR0.665. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Sime Darby Property Berhad has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Sime Darby Property Berhad

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Sime Darby Property Berhad's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If Sime Darby Property Berhad didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Thankfully its dividend payments took up just 33% of the free cash flow it generated, which is a comfortable payout ratio.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Sime Darby Property Berhad was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Sime Darby Property Berhad's dividend payments per share have declined at 9.1% per year on average over the past three years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

Remember, you can always get a snapshot of Sime Darby Property Berhad's financial health, by checking our visualisation of its financial health, here.

To Sum It Up

From a dividend perspective, should investors buy or avoid Sime Darby Property Berhad? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. Bottom line: Sime Darby Property Berhad has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

With that in mind though, if the poor dividend characteristics of Sime Darby Property Berhad don't faze you, it's worth being mindful of the risks involved with this business. To help with this, we've discovered 1 warning sign for Sime Darby Property Berhad that you should be aware of before investing in their shares.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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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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