Seng Fong Holdings Berhad's (KLSE:SENFONG) Dividend Will Be Increased To MYR0.015

The board of Seng Fong Holdings Berhad (KLSE:SENFONG) has announced that it will be paying its dividend of MYR0.015 on the 5th of April, an increased payment from last year's comparable dividend. This makes the dividend yield about the same as the industry average at 2.6%.

Check out our latest analysis for Seng Fong Holdings Berhad

Seng Fong Holdings Berhad's Earnings Easily Cover The Distributions

We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, Seng Fong Holdings Berhad's earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

EPS is set to fall by 38.3% over the next 12 months if recent trends continue. If recent patterns in the dividend continue, we could see the payout ratio reaching 90% in the next 12 months which is on the higher end of the range we would say is sustainable.

Seng Fong Holdings Berhad's Dividend Has Lacked Consistency

Even in its short history, we have seen the dividend cut. Since 2022, the annual payment back then was MYR0.03, compared to the most recent full-year payment of MYR0.02. Dividend payments have fallen sharply, down 33% over that time. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Seng Fong Holdings Berhad's earnings per share has shrunk at 38% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

Seng Fong Holdings Berhad's Dividend Doesn't Look Sustainable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. To that end, Seng Fong Holdings Berhad has 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of 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.