MKH Berhad (KLSE:MKH) stock is about to trade ex-dividend in three days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company’s books as a shareholder in order to receive the dividend. 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. Meaning, you will need to purchase MKH Berhad’s shares before the 20th of December to receive the dividend, which will be paid on the 10th of January.
The company’s upcoming dividend is RM00.04 a share, following on from the last 12 months, when the company distributed a total of RM0.04 per share to shareholders. Last year’s total dividend payments show that MKH Berhad has a trailing yield of 3.4% on the current share price of RM01.19. If you buy this business for its dividend, you should have an idea of whether MKH Berhad’s dividend is reliable and sustainable. So we need to investigate whether MKH Berhad can afford its dividend, and if the dividend could grow.
View our latest analysis for MKH Berhad
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Fortunately MKH Berhad’s payout ratio is modest, at just 31% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 38% of the free cash flow it generated, which is a comfortable payout ratio.
It’s positive to see that MKH 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.
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 MKH Berhad’s earnings per share have been shrinking at 2.2% a year over the previous five years.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. MKH Berhad has seen its dividend decline 7.1% per annum on average over the past 10 years, which is not great to see. While it’s not great that earnings and dividends per share have fallen in recent years, we’re encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.
