Three-A Resources Berhad (KLSE:3A) Passed Our Checks, And It's About To Pay A RM00.016 Dividend

It looks like Three-A Resources Berhad (KLSE:3A) is about to go ex-dividend in the next 3 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, Three-A Resources Berhad investors that purchase the stock on or after the 12th of December will not receive the dividend, which will be paid on the 31st of December.

The company's next dividend payment will be RM00.016 per share, and in the last 12 months, the company paid a total of RM0.038 per share. Looking at the last 12 months of distributions, Three-A Resources Berhad has a trailing yield of approximately 5.2% on its current stock price of RM00.725. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

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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. That's why it's good to see Three-A Resources Berhad paying out a modest 44% of its earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. The good news is it paid out just 19% of its free cash flow in the last year.

It's positive to see that Three-A Resources 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.

Check out our latest analysis for Three-A Resources Berhad

Click here to see how much of its profit Three-A Resources 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 Three-A Resources Berhad earnings per share are up 7.9% per annum over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Three-A Resources Berhad has delivered 13% dividend growth per year on average over the past 10 years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

Is Three-A Resources Berhad an attractive dividend stock, or better left on the shelf? Earnings per share have been growing moderately, and Three-A Resources Berhad is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Three-A Resources Berhad is halfway there. Overall we think this is an attractive combination and worthy of further research.

While it's tempting to invest in Three-A Resources Berhad for the dividends alone, you should always be mindful of the risks involved. For example, we've found 1 warning sign for Three-A Resources Berhad that we recommend you consider before investing in the business.

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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.