Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Globetronics Technology Bhd. (KLSE:GTRONIC) is about to trade ex-dividend in the next three days. 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 as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase Globetronics Technology Bhd's shares before the 17th of November in order to receive the dividend, which the company will pay on the 5th of December.
The company's upcoming dividend is RM0.005 a share, following on from the last 12 months, when the company distributed a total of RM0.05 per share to shareholders. Based on the last year's worth of payments, Globetronics Technology Bhd stock has a trailing yield of around 3.3% on the current share price of MYR1.52. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.
View our latest analysis for Globetronics Technology 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. Globetronics Technology Bhd has a low and conservative payout ratio of just 21% of its income after tax. 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. Fortunately, it paid out only 50% of its free cash flow in the past year.
It's positive to see that Globetronics Technology Bhd's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Globetronics Technology Bhd's earnings per share have fallen at approximately 9.2% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.