Read This Before Considering Batu Kawan Berhad (KLSE:BKAWAN) For Its Upcoming RM00.50 Dividend
Batu Kawan Berhad (KLSE:BKAWAN) stock is about to trade ex-dividend in 3 days. The ex-dividend date is commonly two business days 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 at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Batu Kawan Berhad's shares before the 29th of January in order to be eligible for the dividend, which will be paid on the 12th of February.
The company's next dividend payment will be RM00.50 per share, on the back of last year when the company paid a total of RM0.70 to shareholders. Based on the last year's worth of payments, Batu Kawan Berhad has a trailing yield of 3.5% on the current stock price of RM020.20. 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! So we need to investigate whether Batu Kawan Berhad can afford its dividend, and if the dividend could grow.
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. Batu Kawan Berhad paid out 58% of its earnings to investors last year, a normal payout level for most businesses. 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. Over the last year it paid out 68% of its free cash flow as dividends, within the usual range for most companies.
It's positive to see that Batu Kawan 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.
See our latest analysis for Batu Kawan Berhad
Click here to see how much of its profit Batu Kawan 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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Batu Kawan Berhad earnings per share are up 2.7% per annum over the last five years. Earnings growth has been slim and the company is paying out more than half of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Batu Kawan Berhad has lifted its dividend by approximately 1.6% a year on average.
The Bottom Line
Has Batu Kawan Berhad got what it takes to maintain its dividend payments? Earnings per share have been growing modestly and Batu Kawan Berhad paid out a bit over half of its earnings and free cash flow last year. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
If you want to look further into Batu Kawan Berhad, it's worth knowing the risks this business faces. Be aware that Batu Kawan Berhad is showing 3 warning signs in our investment analysis, and 2 of those are a bit unpleasant...
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.