Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see Malaysia Smelting Corporation Berhad (KLSE:MSC) is about to trade ex-dividend in the next four 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 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 Malaysia Smelting Corporation Berhad’s shares before the 13th of September in order to receive the dividend, which the company will pay on the 29th of September.

The company’s next dividend payment will be RM0.07 per share, and in the last 12 months, the company paid a total of RM0.14 per share. Based on the last year’s worth of payments, Malaysia Smelting Corporation Berhad stock has a trailing yield of around 6.1% on the current share price of MYR2.3. 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! We need to see whether the dividend is covered by earnings and if it’s growing.

View our latest analysis for Malaysia Smelting Corporation Berhad

If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Malaysia Smelting Corporation Berhad paid out 101% of its earnings, which is more than we’re comfortable with, unless there are mitigating circumstances. 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. What’s good is that dividends were well covered by free cash flow, with the company paying out 11% of its cash flow last year.

It’s good to see that while Malaysia Smelting Corporation Berhad’s dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we’d view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That’s why it’s comforting to see Malaysia Smelting Corporation Berhad’s earnings have been skyrocketing, up 28% per annum for the past five years.

Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. Malaysia Smelting Corporation Berhad has delivered 38% dividend growth per year on average over the past six years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

To Sum It Up

Is Malaysia Smelting Corporation Berhad worth buying for its dividend? It’s good to see earnings per share growing and low cashflow payout ratio, although we’re uncomfortable with Malaysia Smelting Corporation Berhad’s paying out such a high percentage of its profit. Overall, it’s not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

On that note, you’ll want to research what risks Malaysia Smelting Corporation Berhad is facing. To help with this, we’ve discovered 2 warning signs for Malaysia Smelting Corporation Berhad that you should be aware of before investing in their shares.

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.