Sime Darby Berhad (KLSE:SIME) Stock Goes Ex-Dividend In Just Four Days
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Sime Darby Berhad (KLSE:SIME) is about to trade ex-dividend in the next four days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase Sime Darby Berhad's shares before the 15th of September in order to be eligible for the dividend, which will be paid on the 30th of September.
The company's upcoming dividend is RM00.11 a share, following on from the last 12 months, when the company distributed a total of RM0.14 per share to shareholders. Last year's total dividend payments show that Sime Darby Berhad has a trailing yield of 5.5% on the current share price of RM02.55. If you buy this business for its dividend, you should have an idea of whether Sime Darby Berhad's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
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 Berhad paid out more than half (54%) of its earnings last year, which is a regular payout ratio for most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Thankfully its dividend payments took up just 37% of the free cash flow it generated, which is a comfortable payout ratio.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
See our latest analysis for Sime Darby Berhad
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Sime Darby Berhad earnings per share are up 3.5% per annum over the last five years. Earnings growth has been slim and the company is paying out more than half of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Sime Darby Berhad's dividend payments per share have declined at 5.6% per year on average over the past 10 years, which is uninspiring. Sime Darby Berhad is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
To Sum It Up
From a dividend perspective, should investors buy or avoid Sime Darby Berhad? While earnings per share growth has been modest, Sime Darby Berhad's dividend payouts are around an average level; without a sharp change in earnings we feel that the dividend is likely somewhat sustainable. Pleasingly the company paid out a conservatively low percentage of its free cash flow. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.
So while Sime Darby Berhad looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For instance, we've identified 2 warning signs for Sime Darby Berhad (1 is significant) you should be aware of.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.