Stock Analysis

S P Setia Berhad's (KLSE:SPSETIA) Dividend Will Be Increased To MYR0.0147

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The board of S P Setia Berhad (KLSE:SPSETIA) has announced that it will be increasing its dividend by 126% on the 20th of April to MYR0.0147, up from last year's comparable payment of MYR0.0065. Even though the dividend went up, the yield is still quite low at only 2.4%.

View our latest analysis for S P Setia Berhad

S P Setia Berhad's Dividend Is Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Based on the last payment, S P Setia Berhad was quite comfortably earning enough to cover the dividend. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Over the next year, EPS is forecast to expand by 135.7%. If the dividend continues on this path, the payout ratio could be 9.7% by next year, which we think can be pretty sustainable going forward.

KLSE:SPSETIA Historic Dividend March 15th 2023

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2013, the annual payment back then was MYR0.14, compared to the most recent full-year payment of MYR0.0147. Dividend payments have fallen sharply, down 90% over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend Has Limited Growth Potential

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. S P Setia Berhad's EPS has fallen by approximately 33% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

Our Thoughts On S P Setia Berhad's Dividend

In summary, while it's always good to see the dividend being raised, we don't think S P Setia Berhad's payments are rock solid. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for S P Setia Berhad (1 doesn't sit too well with us!) that you should be aware of before investing. Is S P Setia Berhad not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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