Readers hoping to buy SD Guthrie Berhad (KLSE:SDG) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Thus, you can purchase SD Guthrie Berhad's shares before the 20th of October in order to receive the dividend, which the company will pay on the 4th of November.
The company's next dividend payment will be RM00.1118 per share. Last year, in total, the company distributed RM0.18 to shareholders. Looking at the last 12 months of distributions, SD Guthrie Berhad has a trailing yield of approximately 3.0% on its current stock price of RM05.94. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is 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. That's why it's good to see SD Guthrie Berhad paying out a modest 50% of its earnings. 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 - 148%, 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.
SD Guthrie Berhad paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the 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.
See our latest analysis for SD Guthrie Berhad
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see SD Guthrie Berhad has grown its earnings rapidly, up 22% a year for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last nine years, SD Guthrie Berhad has lifted its dividend by approximately 11% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
The Bottom Line
Is SD Guthrie Berhad an attractive dividend stock, or better left on the shelf? We like that SD Guthrie Berhad has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. To summarise, SD Guthrie Berhad looks okay on this analysis, although it doesn't appear a stand-out opportunity.
While it's tempting to invest in SD Guthrie Berhad for the dividends alone, you should always be mindful of the risks involved. We've identified 2 warning signs with SD Guthrie Berhad (at least 1 which is concerning), and understanding these should be part of your investment process.
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.