There's A Lot To Like About Southern Acids (M) Berhad's (KLSE:SAB) Upcoming RM00.05 Dividend
Readers hoping to buy Southern Acids (M) Berhad (KLSE:SAB) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, Southern Acids (M) Berhad investors that purchase the stock on or after the 15th of October will not receive the dividend, which will be paid on the 11th of November.
The company's upcoming dividend is RM00.05 a share, following on from the last 12 months, when the company distributed a total of RM0.05 per share to shareholders. Based on the last year's worth of payments, Southern Acids (M) Berhad has a trailing yield of 1.6% on the current stock price of RM03.07. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Southern Acids (M) Berhad is paying out just 13% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Southern Acids (M) Berhad generated enough free cash flow to afford its dividend. The good news is it paid out just 9.2% of its free cash flow in the last year.
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.
View our latest analysis for Southern Acids (M) Berhad
Click here to see how much of its profit Southern Acids (M) Berhad paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Southern Acids (M) Berhad, with earnings per share up 6.9% on average over the last five years. Earnings per share have been increasing steadily and management is reinvesting almost all of the profits back into the business. This is an attractive combination, because when profits are reinvested effectively, growth can compound, with corresponding benefits for earnings and dividends in the future.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. It looks like the Southern Acids (M) Berhad dividends are largely the same as they were 10 years ago.
Final Takeaway
Is Southern Acids (M) Berhad an attractive dividend stock, or better left on the shelf? Earnings per share growth has been growing somewhat, and Southern Acids (M) Berhad is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Southern Acids (M) Berhad is halfway there. It's a promising combination that should mark this company worthy of closer attention.
While it's tempting to invest in Southern Acids (M) Berhad for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 1 warning sign for Southern Acids (M) Berhad that you should be aware of before investing in their shares.
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.