Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Magnum Berhad (KLSE:MAGNUM) is about to trade ex-dividend in the next three 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Magnum Berhad's shares before the 15th of June in order to receive the dividend, which the company will pay on the 30th of June.
The company's upcoming dividend is RM0.01 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 stock has a trailing yield of around 5.0% on the current share price of MYR1.01. If you buy this business for its dividend, you should have an idea of whether Magnum Berhad's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
See our latest analysis for Magnum Berhad
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Magnum Berhad paid out 72% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out more than half (51%) of its free cash flow in the past year, which is within an average range for most companies.
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 shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're discomforted by Magnum Berhad's 14% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.