SKP Resources Bhd's (KLSE:SKPRES) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of SKP Resources Bhd (KLSE:SKPRES) has announced that it will be paying its dividend of MYR0.0555 on the 28th of October, an increased payment from last year's comparable dividend. Despite this raise, the dividend yield of 3.1% is only a modest boost to shareholder returns.

View our latest analysis for SKP Resources Bhd

SKP Resources Bhd's Payment Has Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. Based on the last dividend, SKP Resources Bhd is earning enough to cover the payment, but then it makes up 158% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Looking forward, earnings per share is forecast to rise by 41.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 37%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the annual payment back then was MYR0.016, compared to the most recent full-year payment of MYR0.0555. This means that it has been growing its distributions at 13% per annum over that time. SKP Resources Bhd has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

We Could See SKP Resources Bhd's Dividend Growing

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. SKP Resources Bhd has seen EPS rising for the last five years, at 7.5% per annum. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think SKP Resources Bhd's payments are rock solid. While SKP Resources Bhd is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign 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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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.