Here's Why We're Wary Of Buying Sports Toto Berhad's (KLSE:SPTOTO) For Its Upcoming Dividend
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 Sports Toto Berhad (KLSE:SPTOTO) is about to go ex-dividend in just three days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. 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. This means that investors who purchase Sports Toto Berhad's shares on or after the 24th of September will not receive the dividend, which will be paid on the 16th of October.
The company's next dividend payment will be RM00.03 per share. Last year, in total, the company distributed RM0.12 to shareholders. Calculating the last year's worth of payments shows that Sports Toto Berhad has a trailing yield of 9.4% on the current share price of RM01.28. If you buy this business for its dividend, you should have an idea of whether Sports Toto Berhad's dividend is reliable and sustainable. As a result, readers should always check whether Sports Toto 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. Last year, Sports Toto Berhad paid out 98% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. A useful secondary check can be to evaluate whether Sports Toto Berhad generated enough free cash flow to afford its dividend. It paid out 90% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.
Cash is slightly more important than profit from a dividend perspective, but given Sports Toto Berhad's payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.
Check out our latest analysis for Sports Toto Berhad
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That explains why we're not overly excited about Sports Toto Berhad's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Minimal earnings growth, combined with concerningly high payout ratios suggests that Sports Toto Berhad is unlikely to grow the dividend much in future, and indeed the payment could be vulnerable to a cut.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Sports Toto Berhad's dividend payments per share have declined at 3.1% per year on average over the past 10 years, which is uninspiring.
Final Takeaway
Has Sports Toto Berhad got what it takes to maintain its dividend payments? Sports Toto Berhad is paying out an uncomfortably high percentage of both earnings and cash flow as dividends, at the same time as its earnings per share are struggling to grow. It's not that we think Sports Toto Berhad is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
With that being said, if you're still considering Sports Toto Berhad as an investment, you'll find it beneficial to know what risks this stock is facing. Every company has risks, and we've spotted 2 warning signs for Sports Toto Berhad you should know about.
If you're in the market for strong dividend payers, we recommend checking our selection of top 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.