Readers hoping to buy Amway (Malaysia) Holdings Berhad (KLSE:AMWAY) 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 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 Amway (Malaysia) Holdings Berhad's shares before the 6th of December in order to be eligible for the dividend, which will be paid on the 18th of December.
The company's upcoming dividend is RM00.05 a share, following on from the last 12 months, when the company distributed a total of RM0.60 per share to shareholders. Last year's total dividend payments show that Amway (Malaysia) Holdings Berhad has a trailing yield of 8.8% on the current share price of RM06.85. If you buy this business for its dividend, you should have an idea of whether Amway (Malaysia) Holdings Berhad's dividend is reliable and sustainable. So we need to investigate whether Amway (Malaysia) Holdings Berhad can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Amway (Malaysia) Holdings Berhad
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Amway (Malaysia) Holdings Berhad's payout ratio is modest, at just 27% of profit. A useful secondary check can be to evaluate whether Amway (Malaysia) Holdings Berhad generated enough free cash flow to afford its dividend. The good news is it paid out just 7.4% of its free cash flow in the last year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
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 earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Amway (Malaysia) Holdings Berhad's earnings per share have been growing at 18% a year for the past five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.