Should Income Investors Look At Westports Holdings Berhad (KLSE:WPRTS) Before Its Ex-Dividend?
Westports Holdings Berhad (KLSE:WPRTS) stock is about to trade ex-dividend in three days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. 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. Accordingly, Westports Holdings Berhad investors that purchase the stock on or after the 13th of August will not receive the dividend, which will be paid on the 10th of September.
The company's next dividend payment will be RM00.1498 per share, on the back of last year when the company paid a total of RM0.22 to shareholders. Calculating the last year's worth of payments shows that Westports Holdings Berhad has a trailing yield of 3.1% on the current share price of RM07.11. If you buy this business for its dividend, you should have an idea of whether Westports Holdings Berhad's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Westports Holdings Berhad is paying out an acceptable 75% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Westports Holdings Berhad generated enough free cash flow to afford its dividend. It paid out more than half (56%) of its free cash flow in the past year, which is within an average range for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Check out our latest analysis for Westports Holdings Berhad
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 fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Westports Holdings Berhad's earnings per share have been growing at 13% a year for the past five years. Westports Holdings Berhad has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Westports Holdings Berhad has delivered 7.0% dividend growth per year on average over the past 10 years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Should investors buy Westports Holdings Berhad for the upcoming dividend? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. However, we'd also note that Westports Holdings Berhad is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. All things considered, we are not particularly enthused about Westports Holdings Berhad from a dividend perspective.
On that note, you'll want to research what risks Westports Holdings Berhad is facing. Every company has risks, and we've spotted 1 warning sign for Westports Holdings Berhad you should know about.
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.