It looks like DXN Holdings Bhd. (KLSE:DXN) is about to go ex-dividend in the next 2 days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. In other words, investors can purchase DXN Holdings Bhd's shares before the 12th of August in order to be eligible for the dividend, which will be paid on the 28th of August.
The company's next dividend payment will be RM00.006 per share, on the back of last year when the company paid a total of RM0.032 to shareholders. Based on the last year's worth of payments, DXN Holdings Bhd has a trailing yield of 6.9% on the current stock price of RM00.465. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether DXN Holdings Bhd can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. DXN Holdings Bhd paid out 56% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 82% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.
It's positive to see that DXN Holdings Bhd's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Check out our latest analysis for DXN Holdings Bhd
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see DXN Holdings Bhd earnings per share are up 5.4% per annum over the last five years. Decent historical earnings per share growth suggests DXN Holdings Bhd has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. DXN Holdings Bhd has delivered 26% dividend growth per year on average over the past three years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Should investors buy DXN Holdings Bhd for the upcoming dividend? Earnings per share have been growing modestly and DXN Holdings Bhd paid out a bit over half of its earnings and free cash flow last year. In summary, while it has some positive characteristics, we're not inclined to race out and buy DXN Holdings Bhd today.
Ever wonder what the future holds for DXN Holdings Bhd? See what the two analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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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.