Readers hoping to buy Bermaz Auto Berhad (KLSE:BAUTO) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. 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. Therefore, if you purchase Bermaz Auto Berhad's shares on or after the 18th of July, you won't be eligible to receive the dividend, when it is paid on the 2nd of August.
The company's upcoming dividend is RM00.1175 a share, following on from the last 12 months, when the company distributed a total of RM0.26 per share to shareholders. Last year's total dividend payments show that Bermaz Auto Berhad has a trailing yield of 9.9% on the current share price of RM02.62. 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 check whether the dividend payments are covered, and if earnings are growing.
View our latest analysis for Bermaz Auto Berhad
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Bermaz Auto Berhad paid out 63% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Bermaz Auto Berhad generated enough free cash flow to afford its dividend. Over the past year it paid out 112% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
Bermaz Auto Berhad paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Bermaz Auto Berhad's ability to maintain its dividend.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. 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 Bermaz Auto Berhad earnings per share are up 5.7% per annum over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.