Readers hoping to buy Sunsuria Berhad (KLSE:SUNSURIA) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn’t show on the record date. Therefore, if you purchase Sunsuria Berhad’s shares on or after the 20th of December, you won’t be eligible to receive the dividend, when it is paid on the 31st of December.
The company’s next dividend payment will be RM00.01 per share. Last year, in total, the company distributed RM0.04 to shareholders. Based on the last year’s worth of payments, Sunsuria Berhad has a trailing yield of 8.2% on the current stock price of RM00.49. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Sunsuria Berhad can afford its dividend, and if the dividend could grow.
See our latest analysis for Sunsuria Berhad
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. Sunsuria Berhad distributed an unsustainably high 116% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. 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. The good news is it paid out just 10% of its free cash flow in the last year.
It’s disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Sunsuria Berhad fortunately did generate enough cash to fund its dividend. Still, if the company repeatedly paid a dividend greater than its profits, we’d be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.
Click here to see how much of its profit Sunsuria Berhad paid out over the last 12 months.
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we’re concerned to see Sunsuria Berhad’s earnings per share have dropped 30% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
