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Readers hoping to buy Gas Malaysia Berhad (KLSE:GASMSIA) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase Gas Malaysia Berhad’s shares before the 12th of October to receive the dividend, which will be paid on the 27th of October.
The company’s next dividend payment will be RM0.057 per share, on the back of last year when the company paid a total of RM0.14 to shareholders. Last year’s total dividend payments show that Gas Malaysia Berhad has a trailing yield of 4.7% on the current share price of MYR3.06. If you buy this business for its dividend, you should have an idea of whether Gas Malaysia Berhad’s dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it’s growing.
See our latest analysis for Gas Malaysia 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. It paid out 76% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We’d be concerned if earnings began to decline. 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. Dividends consumed 70% of the company’s free cash flow last year, which is within a normal range for most dividend-paying organisations.
It’s positive to see that Gas Malaysia 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?
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. For this reason, we’re glad to see Gas Malaysia Berhad’s earnings per share have risen 19% per annum over the last five years. It paid out more than three-quarters of its earnings in the last year, even though earnings per share are growing rapidly. Higher earnings generally bode well for growing dividends, although with seemingly strong growth prospects we’d wonder why management are not reinvesting more in the business.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Gas Malaysia Berhad has lifted its dividend by approximately 3.7% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Gas Malaysia Berhad is keeping back more of its profits to grow the business.
Final Takeaway
From a dividend perspective, should investors buy or avoid Gas Malaysia Berhad? It’s good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. That’s why we’re glad to see Gas Malaysia Berhad’s earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow – 76% and 70% respectively. To summarise, Gas Malaysia Berhad looks okay on this analysis, although it doesn’t appear a stand-out opportunity.
While it’s tempting to invest in Gas Malaysia Berhad for the dividends alone, you should always be mindful of the risks involved. We’ve identified 2 warning signs with Gas Malaysia Berhad (at least 1 which shouldn’t be ignored), and understanding these should be part of your investment process.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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