Dividend Investors: Don't Be Too Quick To Buy Carlsberg Brewery Malaysia Berhad (KLSE:CARLSBG) For Its Upcoming Dividend
editorial-team@simplywallst.com (Simply Wall St)
4 min read
Carlsberg Brewery Malaysia Berhad (KLSE:CARLSBG) stock is about to trade ex-dividend in three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Carlsberg Brewery Malaysia Berhad investors that purchase the stock on or after the 7th of June will not receive the dividend, which will be paid on the 21st of June.
The company's upcoming dividend is RM00.31 a share, following on from the last 12 months, when the company distributed a total of RM0.93 per share to shareholders. Calculating the last year's worth of payments shows that Carlsberg Brewery Malaysia Berhad has a trailing yield of 4.7% on the current share price of RM019.80. 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 Carlsberg Brewery Malaysia Berhad 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. Its dividend payout ratio is 87% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be concerned if earnings began to decline. 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 company paid out 95% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.
While Carlsberg Brewery Malaysia Berhad's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Carlsberg Brewery Malaysia Berhad's ability to maintain its dividend.
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Carlsberg Brewery Malaysia Berhad earnings per share are up 3.6% per annum over the last five years. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Carlsberg Brewery Malaysia Berhad has increased its dividend at approximately 4.0% a year on average. 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
From a dividend perspective, should investors buy or avoid Carlsberg Brewery Malaysia Berhad? Carlsberg Brewery Malaysia Berhad is paying out a reasonable percentage of its income and an uncomfortably high 95% of its cash flow as dividends. At least earnings per share have been growing steadily. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.
With that in mind though, if the poor dividend characteristics of Carlsberg Brewery Malaysia Berhad don't faze you, it's worth being mindful of the risks involved with this business. Our analysis shows 2 warning signs for Carlsberg Brewery Malaysia Berhad that we strongly recommend you have a look at before investing in the company.
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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.
