Why It Might Not Make Sense To Buy Bursa Malaysia Berhad (KLSE:BURSA) For Its Upcoming Dividend
Bursa Malaysia Berhad (KLSE:BURSA) is about to trade ex-dividend in the next four days. Typically, the ex-dividend date is two business days 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 of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Thus, you can purchase Bursa Malaysia Berhad's shares before the 18th of August in order to receive the dividend, which the company will pay on the 27th of August.
The company's next dividend payment will be RM00.165 per share, and in the last 12 months, the company paid a total of RM0.28 per share. Based on the last year's worth of payments, Bursa Malaysia Berhad has a trailing yield of 3.3% on the current stock price of RM08.56. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
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. Bursa Malaysia Berhad paid out 92% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances.
When the dividend payout ratio is high, as it is in this case, the dividend is usually at greater risk of being cut in the future.
View our latest analysis for Bursa Malaysia Berhad
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're discomforted by Bursa Malaysia Berhad's 6.6% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Bursa Malaysia Berhad has lifted its dividend by approximately 2.0% a year on average.
Final Takeaway
Has Bursa Malaysia Berhad got what it takes to maintain its dividend payments? Not only are earnings per share shrinking, but Bursa Malaysia Berhad is paying out a disconcertingly high percentage of its profit as dividends. Generally we think dividend investors should avoid businesses in this situation, as high payout ratios and declining earnings can lead to the dividend being cut. Bursa Malaysia Berhad doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.
Although, if you're still interested in Bursa Malaysia Berhad and want to know more, you'll find it very useful to know what risks this stock faces. For example - Bursa Malaysia Berhad has 1 warning sign we think you should be aware of.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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.