Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that PETRONAS Chemicals Group Berhad (KLSE:PCHEM) is about to go ex-dividend in just 3 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 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. Accordingly, PETRONAS Chemicals Group Berhad investors that purchase the stock on or after the 7th of September will not receive the dividend, which will be paid on the 21st of September.

The company's upcoming dividend is RM0.08 a share, following on from the last 12 months, when the company distributed a total of RM0.41 per share to shareholders. Calculating the last year's worth of payments shows that PETRONAS Chemicals Group Berhad has a trailing yield of 5.8% on the current share price of MYR7.12. 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! As a result, readers should always check whether PETRONAS Chemicals Group Berhad has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for PETRONAS Chemicals Group 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. PETRONAS Chemicals Group Berhad paid out 54% of its earnings to investors last year, a normal payout level for most businesses. 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. Over the last year, it paid out more than three-quarters (76%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

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?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's not ideal to see PETRONAS Chemicals Group Berhad's earnings per share have been shrinking at 3.3% a year over the previous five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. PETRONAS Chemicals Group Berhad has delivered an average of 9.9% per year annual increase in its dividend, based on the past 10 years of dividend payments. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.

Final Takeaway

Is PETRONAS Chemicals Group Berhad an attractive dividend stock, or better left on the shelf? It's never good to see earnings per share shrinking, but at least the dividend payout ratios appear reasonable. We're aware though that if earnings continue to decline, the dividend could be at risk. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

With that in mind though, if the poor dividend characteristics of PETRONAS Chemicals Group Berhad don't faze you, it's worth being mindful of the risks involved with this business. For example - PETRONAS Chemicals Group Berhad has 2 warning signs we think you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.