SKP Resources Bhd (KLSE:SKPRES) Will Pay A Smaller Dividend Than Last Year

SKP Resources Bhd (KLSE:SKPRES) has announced that on 24th of October, it will be paying a dividend ofMYR0.0292, which a reduction from last year's comparable dividend. The yield is still above the industry average at 3.9%.

See our latest analysis for SKP Resources Bhd

SKP Resources Bhd's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before this announcement, SKP Resources Bhd was paying out 80% of earnings, but a comparatively small 36% of free cash flows. This leaves plenty of cash for reinvestment into the business.

The next year is set to see EPS grow by 73.2%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 30% which brings it into quite a comfortable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of MYR0.0176 in 2014 to the most recent total annual payment of MYR0.045. This means that it has been growing its distributions at 9.8% per annum over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. SKP Resources Bhd hasn't seen much change in its earnings per share over the last five years. Earnings are not growing quickly at all, and the company is paying out most of its profit as dividends. When a company prefers to pay out cash to its shareholders instead of reinvesting it, this can often say a lot about that company's dividend prospects.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. 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. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for SKP Resources Bhd that investors need to be conscious of moving forward. Is SKP Resources 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.

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