Balancing High Yield and Risk: Is CEKD Berhad (KLSE:CEKD) a Viable Dividend Play?

Dividend investing often hinges on a delicate trade-off: the allure of high yields versus the risks of unsustainably high payouts. For income-focused investors, CEKD Berhad (KLSE:CEKD) presents a compelling yet precarious case. With a current dividend yield of 6.4%, the company's upcoming ex-dividend date on August 28, 2025 has drawn attention from those seeking yield in a low-growth market. But beneath the surface, a closer look reveals a complex picture of inconsistent payouts, declining earnings, and a payout ratio that, while manageable today, may strain the company's long-term ability to maintain its dividend.

The Attraction of a 6.4% Yield

CEKD Berhad's dividend yield of 6.4%—calculated using its current share price of RM0.35 and the upcoming RM0.005 per share payout—stands out in a market where many blue-chip stocks offer yields below 3%. This yield is further amplified by the company's recent dividend growth trajectory. Since 2023, CEKD has increased its annual dividend from RM0.015 to RM0.0225, a compound annual growth rate (CAGR) of 22%. For investors prioritizing income, this combination of yield and growth is undeniably tempting.

However, the sustainability of this payout must be scrutinized. CEKD's earnings per share (EPS) have declined by an average of 2.4% annually over the past five years, and analysts project a further 2.4% drop in the next 12 months. This trend raises a critical question: Can a company with shrinking earnings reliably fund a growing dividend?

The Risks of a Volatile Payout History

CEKD's dividend history is a mixed bag. While the company has demonstrated a willingness to increase payouts in recent years, it has also cut dividends in the past. This inconsistency is a red flag for income investors, who typically seek stable, predictable cash flows. The current payout ratio of 23% of free cash flow appears sustainable in the short term, but this metric masks the fragility of the underlying earnings base.

Consider the broader financial context: CEKD's third-quarter 2025 results showed flat revenue and net income compared to the same period in 2024. While the company maintained a 20% profit margin, its return on capital employed (ROCE) has declined from 16% three years ago to 13% today. This weakening ROCE suggests that CEKD is struggling to generate returns from its reinvested capital—a challenge that could exacerbate earnings declines and pressure the dividend.

The Ex-Dividend Date: A Timing Consideration

For investors eyeing the RM0.005 per share payout, the ex-dividend date of August 28, 2025 is a critical milestone. To qualify for the dividend, shares must be purchased by August 27. Given the stock's recent 14% price drop, some may view this as an opportunity to secure the high yield at a discount. However, the valuation itself is a double-edged sword. While CEKD trades at a 68.2% discount to its estimated intrinsic value (MYR1.10), this undervaluation reflects market skepticism about its earnings trajectory and dividend sustainability.

The Verdict: A High-Yield Gamble?

CEKD Berhad's 6.4% yield is undeniably attractive, especially for investors seeking income in a low-yield environment. However, the risks of inconsistent payouts and declining earnings cannot be ignored. The company's payout ratio of 23% is currently manageable, but if EPS continues to fall, even this modest ratio could become untenable.

For risk-tolerant investors, CEKD could serve as a speculative addition to a diversified portfolio, particularly if they are willing to monitor the company's earnings closely and prepare for potential dividend cuts. However, for those prioritizing stability, the stock's volatility and earnings challenges make it a less reliable choice.

Final Advice

If you're considering CEKD Berhad ahead of its ex-dividend date, proceed with caution. The high yield is a siren song, but the underlying fundamentals suggest a company in transition. Investors should weigh the immediate income against the long-term risks of a payout that may not survive the next earnings downturn. For now, CEKD remains a high-yield option with a question mark—ideal for those who can stomach the uncertainty but not for those seeking a fortress of income.