Why It Might Not Make Sense To Buy PETRONAS Chemicals Group Berhad (KLSE:PCHEM) For Its Upcoming Dividend
Readers hoping to buy PETRONAS Chemicals Group Berhad (KLSE:PCHEM) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 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 PETRONAS Chemicals Group Berhad's shares before the 4th of September in order to receive the dividend, which the company will pay on the 15th of September.
The company's next dividend payment will be RM00.06 per share, on the back of last year when the company paid a total of RM0.12 to shareholders. Calculating the last year's worth of payments shows that PETRONAS Chemicals Group Berhad has a trailing yield of 2.8% on the current share price of RM04.25. 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 check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. PETRONAS Chemicals Group Berhad reported a loss last year, so it's not great to see that it has continued paying a dividend. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If PETRONAS Chemicals Group Berhad didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Thankfully its dividend payments took up just 25% of the free cash flow it generated, which is a comfortable payout ratio.
Check out our latest analysis for PETRONAS Chemicals Group Berhad
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. PETRONAS Chemicals Group Berhad was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. PETRONAS Chemicals Group Berhad has seen its dividend decline 2.8% per annum on average over the past 10 years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.
Remember, you can always get a snapshot of PETRONAS Chemicals Group Berhad's financial health, by checking our visualisation of its financial health, here.
To Sum It Up
Is PETRONAS Chemicals Group Berhad an attractive dividend stock, or better left on the shelf? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.
With that in mind though, if the poor dividend characteristics of PETRONAS Chemicals Group Berhad don't faze you, it's worth being mindful of the risks involved with this business. In terms of investment risks, we've identified 1 warning sign with PETRONAS Chemicals Group Berhad and understanding them should be part of your investment process.
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.