SEG International Bhd (KLSE:SEG) stock is about to trade ex-dividend in 3 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase SEG International Bhd's shares on or after the 2nd of August will not receive the dividend, which will be paid on the 18th of August.
The company's next dividend payment will be RM0.013 per share, on the back of last year when the company paid a total of RM0.04 to shareholders. Looking at the last 12 months of distributions, SEG International Bhd has a trailing yield of approximately 4.8% on its current stock price of MYR0.69. 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 SEG International Bhd can afford its dividend, and if the dividend could grow.
Check out our latest analysis for SEG International Bhd
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. SEG International Bhd distributed an unsustainably high 170% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. 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. It paid out 93% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.
Cash is slightly more important than profit from a dividend perspective, but given SEG International Bhd's payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.
Click here to see how much of its profit SEG International Bhd paid out over the last 12 months.
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. If earnings fall far enough, the company could be forced to cut its dividend. That explains why we're not overly excited about SEG International Bhd's flat earnings over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.