Just Four Days Till SHL Consolidated Bhd. (KLSE:SHL) Will Be Trading Ex-Dividend
SHL Consolidated Bhd. (KLSE:SHL) stock is about to trade ex-dividend in 4 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase SHL Consolidated Bhd's shares before the 7th of October to receive the dividend, which will be paid on the 22nd of October.
The company's next dividend payment will be RM00.12 per share. Last year, in total, the company distributed RM0.12 to shareholders. Calculating the last year's worth of payments shows that SHL Consolidated Bhd has a trailing yield of 5.3% on the current share price of RM02.26. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether SHL Consolidated Bhd has been able to grow its dividends, or if the dividend might be cut.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Its dividend payout ratio is 82% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be worried about the risk of a drop in earnings. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. SHL Consolidated Bhd paid out more free cash flow than it generated - 124%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
SHL Consolidated Bhd does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.
While SHL Consolidated Bhd'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 SHL Consolidated Bhd to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
See our latest analysis for SHL Consolidated Bhd
Click here to see how much of its profit SHL Consolidated Bhd paid out over the last 12 months.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at SHL Consolidated Bhd, with earnings per share up 8.7% on average over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. SHL Consolidated Bhd's dividend payments per share have declined at 7.1% per year on average over the past 10 years, which is uninspiring. SHL Consolidated Bhd 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.
The Bottom Line
Is SHL Consolidated Bhd worth buying for its dividend? Earnings per share have grown somewhat, although SHL Consolidated Bhd paid out over half its profits and the dividend was not well covered by free cash flow. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.
Although, if you're still interested in SHL Consolidated Bhd and want to know more, you'll find it very useful to know what risks this stock faces. Every company has risks, and we've spotted 2 warning signs for SHL Consolidated Bhd (of which 1 can't be ignored!) you should know about.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are 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.