SKP Resources Bhd's (KLSE:SKPRES) Dividend Will Be Reduced To MYR0.045

SKP Resources Bhd's (KLSE:SKPRES) dividend is being reduced from last year's payment covering the same period to MYR0.045 on the 26th of October. The dividend yield of 4.8% is still a nice boost to shareholder returns, despite the cut.

See our latest analysis for SKP Resources Bhd

SKP Resources Bhd's Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, SKP Resources Bhd was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The business is earning enough to make the dividend feasible, but the cash payout ratio of 85% indicates it is more focused on returning cash to shareholders than growing the business.

The next year is set to see EPS grow by 38.7%. If the dividend continues on this path, the payout ratio could be 45% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2013, the annual payment back then was MYR0.0136, compared to the most recent full-year payment of MYR0.045. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

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. Growth of 0.7% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This could mean the dividend doesn't have the growth potential we look for going into the future.

In Summary

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. We don't think SKP Resources Bhd is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 2 warning signs for SKP Resources Bhd that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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