Readers hoping to buy Magnum Berhad (KLSE:MAGNUM) 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 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. In other words, investors can purchase Magnum Berhad's shares before the 1st of September in order to be eligible for the dividend, which will be paid on the 13th of September.
The company's upcoming dividend is RM0.02 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, Magnum Berhad has a trailing yield of 4.1% on the current stock price of MYR1.22. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
See our latest analysis for Magnum 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. Magnum Berhad paid out 68% of its earnings to investors last year, a normal payout level for most businesses. 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. Thankfully its dividend payments took up just 48% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that Magnum Berhad'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?
Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're discomforted by Magnum Berhad's 11% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.