Some investors rely on dividends for growing their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that SD Guthrie Berhad (KLSE:SDG) is about to go ex-dividend in just three days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company’s books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. This means that investors who purchase SD Guthrie Berhad’s shares on or after the 7th of May will not receive the dividend, which will be paid on the 22nd of May.
The company’s upcoming dividend is RM00.1035 a share, following on from the last 12 months, when the company distributed a total of RM0.18 per share to shareholders. Last year’s total dividend payments show that SD Guthrie Berhad has a trailing yield of 2.9% on the current share price of RM06.20. If you buy this business for its dividend, you should have an idea of whether SD Guthrie Berhad’s dividend is reliable and sustainable. As a result, readers should always check whether SD Guthrie Berhad has been able to grow its dividends, or if the dividend might be cut.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. SD Guthrie Berhad is paying out an acceptable 50% of its profit, a common payout level among 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. SD Guthrie Berhad paid out more free cash flow than it generated – 115%, to be precise – last year, which we think is concerningly high. It’s hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we’d wonder how the company justifies this payout level.
While SD Guthrie Berhad’s dividends were covered by the company’s reported profits, cash is somewhat more important, so it’s not great to see that the company didn’t generate enough cash to pay its dividend. Cash is king, as they say, and were SD Guthrie Berhad to repeatedly pay dividends that aren’t well covered by cashflow, we would consider this a warning sign.
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, SD Guthrie Berhad’s earnings per share have been growing at 18% a year for the past five years. Earnings have been growing at a decent rate, but we’re concerned dividend payments consumed most of the company’s cash flow over the past year.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. In the past eight years, SD Guthrie Berhad has increased its dividend at approximately 13% a year on average. It’s great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
The Bottom Line
From a dividend perspective, should investors buy or avoid SD Guthrie Berhad? It’s good to see that earnings per share are growing and that the company’s payout ratio is within a normal range for most businesses. However we’re somewhat concerned that it paid out 115% of its cashflow, which is uncomfortably high. In summary, it’s hard to get excited about SD Guthrie Berhad from a dividend perspective.
With that being said, if dividends aren’t your biggest concern with SD Guthrie Berhad, you should know about the other risks facing this business. To help with this, we’ve discovered 2 warning signs for SD Guthrie Berhad (1 can’t be ignored!) that you ought to be aware of before buying the shares.
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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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