Bermaz Auto Berhad (KLSE:BAUTO) stock is about to trade ex-dividend in 4 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Bermaz Auto Berhad investors that purchase the stock on or after the 19th of October will not receive the dividend, which will be paid on the 4th of November.
The company's next dividend payment will be RM00.02 per share, on the back of last year when the company paid a total of RM0.072 to shareholders. Based on the last year's worth of payments, Bermaz Auto Berhad has a trailing yield of 9.4% on the current stock price of RM00.905. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Bermaz Auto Berhad has been able to grow its dividends, or if the dividend might be cut.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Bermaz Auto Berhad paid out more than half (56%) of its earnings last year, which is a regular payout ratio for most companies. 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. Dividends consumed 63% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's positive to see that Bermaz Auto Berhad'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.
View our latest analysis for Bermaz Auto Berhad
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That explains why we're not overly excited about Bermaz Auto Berhad's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Earnings growth has been slim and the company is paying out more than half of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Bermaz Auto Berhad has seen its dividend decline 6.6% per annum on average over the past 10 years, which is not great to see.
The Bottom Line
Should investors buy Bermaz Auto Berhad for the upcoming dividend? Earnings per share have barely grown, and although Bermaz Auto Berhad paid out over half its earnings and free cash flow last year, the payout ratios are within a normal range for most companies. All things considered, we are not particularly enthused about Bermaz Auto Berhad from a dividend perspective.
So if you want to do more digging on Bermaz Auto Berhad, you'll find it worthwhile knowing the risks that this stock faces. Our analysis shows 1 warning sign for Bermaz Auto Berhad and you should be aware of this before buying any shares.
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.