Income Investors Should Know That Bermaz Auto Berhad (KLSE:BAUTO) Goes Ex-Dividend Soon
Simply Wall St
4 min read
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. The ex-dividend date is one business day 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. 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, Bermaz Auto Berhad investors that purchase the stock on or after the 20th of July will not receive the dividend, which will be paid on the 4th of August.
The company's next dividend payment will be RM0.11 per share, on the back of last year when the company paid a total of RM0.22 to shareholders. Calculating the last year's worth of payments shows that Bermaz Auto Berhad has a trailing yield of 9.7% on the current share price of MYR2.27. If you buy this business for its dividend, you should have an idea of whether Bermaz Auto Berhad's dividend is reliable and sustainable. 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.
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. 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 flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Bermaz Auto Berhad paid out more free cash flow than it generated - 122%, to be precise - last year, which we think is concerningly 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 does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.
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.
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 earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Bermaz Auto Berhad's earnings per share have risen 16% per annum over the last five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Bermaz Auto Berhad has lifted its dividend by approximately 24% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
To Sum It Up
Is Bermaz Auto Berhad worth buying for its dividend? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note Bermaz Auto Berhad paid out a much higher percentage of its free cash flow, which makes us uncomfortable. To summarise, Bermaz Auto Berhad looks okay on this analysis, although it doesn't appear a stand-out opportunity.
If you want to look further into Bermaz Auto Berhad, it's worth knowing the risks this business faces. For example, Bermaz Auto Berhad has 3 warning signs (and 2 which are potentially serious) we think you should know about.
Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Join A Paid User Research Session You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
