Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see GuocoLand (Malaysia) Berhad (KLSE:GUOCO) is about to trade ex-dividend in the next 4 days. 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. 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 GuocoLand (Malaysia) Berhad’s shares before the 30th of October in order to receive the dividend, which the company will pay on the 15th of November.

The company’s upcoming dividend is RM0.02 a share, following on from the last 12 months, when the company distributed a total of RM0.02 per share to shareholders. Last year’s total dividend payments show that GuocoLand (Malaysia) Berhad has a trailing yield of 2.8% on the current share price of MYR0.715. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether GuocoLand (Malaysia) Berhad can afford its dividend, and if the dividend could grow.

See our latest analysis for GuocoLand (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. Fortunately GuocoLand (Malaysia) Berhad’s payout ratio is modest, at just 39% of profit. 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 6.6% of its free cash flow as dividends last year, which is conservatively low.

It’s positive to see that GuocoLand (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 how much of its profit GuocoLand (Malaysia) Berhad paid out over the last 12 months.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we’re glad to see GuocoLand (Malaysia) Berhad’s earnings per share have risen 10% per annum over the last five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. It looks like the GuocoLand (Malaysia) Berhad dividends are largely the same as they were 10 years ago.

To Sum It Up

Has GuocoLand (Malaysia) Berhad got what it takes to maintain its dividend payments? GuocoLand (Malaysia) Berhad has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it’s cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. It’s a promising combination that should mark this company worthy of closer attention.

While it’s tempting to invest in GuocoLand (Malaysia) Berhad for the dividends alone, you should always be mindful of the risks involved. Case in point: We’ve spotted 1 warning sign for GuocoLand (Malaysia) Berhad 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.