Readers hoping to buy Fraser & Neave Holdings Bhd (KLSE:F&N) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled 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. Therefore, if you purchase Fraser & Neave Holdings Bhd's shares on or after the 16th of January, you won't be eligible to receive the dividend, when it is paid on the 10th of February.
The company's next dividend payment will be RM00.33 per share, on the back of last year when the company paid a total of RM0.63 to shareholders. Calculating the last year's worth of payments shows that Fraser & Neave Holdings Bhd has a trailing yield of 2.3% on the current share price of RM027.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
View our latest analysis for Fraser & Neave Holdings Bhd
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Fraser & Neave Holdings Bhd paying out a modest 43% of its earnings. 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 62% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Fraser & Neave Holdings Bhd earnings per share are up 5.8% per annum over the last five years. Decent historical earnings per share growth suggests Fraser & Neave 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.