Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see Heineken Malaysia Berhad (KLSE:HEIM) is about to trade ex-dividend in the next 4 days. 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 important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company’s books on the record date. Therefore, if you purchase Heineken Malaysia Berhad’s shares on or after the 20th of June, you won’t be eligible to receive the dividend, when it is paid on the 20th of July.

The company’s next dividend payment will be RM0.98 per share, on the back of last year when the company paid a total of RM1.38 to shareholders. Calculating the last year’s worth of payments shows that Heineken Malaysia Berhad has a trailing yield of 5.1% on the current share price of MYR27.1. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That’s why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Heineken Malaysia 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. Heineken Malaysia Berhad paid out 102% of its earnings, which is more than we’re comfortable with, unless there are mitigating circumstances. 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. It paid out 98% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect – but we’d generally want to look more closely here.

As Heineken Malaysia Berhad’s dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.

Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we’re encouraged by the steady growth at Heineken Malaysia Berhad, with earnings per share up 8.7% on average over the last five years. Earnings per share have been growing comfortably, although unfortunately the company is paying out more of its profits than we’re comfortable with over the long term.

Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. Heineken Malaysia Berhad has delivered 7.8% dividend growth per year on average over the past 10 years. We’re glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

From a dividend perspective, should investors buy or avoid Heineken Malaysia Berhad? Heineken Malaysia Berhad is paying out an uncomfortably high percentage of both earnings and cash flow as dividends, although at least earnings per share are growing somewhat. It’s not the most attractive proposition from a dividend perspective, and we’d probably give this one a miss for now.

So if you’re still interested in Heineken Malaysia Berhad despite it’s poor dividend qualities, you should be well informed on some of the risks facing this stock. For example, we’ve found 1 warning sign for Heineken Malaysia Berhad that we recommend you consider before investing in the business.

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.