Should Income Investors Look At Kossan Rubber Industries Bhd (KLSE:KOSSAN) Before Its Ex-Dividend?

Kossan Rubber Industries Bhd (KLSE:KOSSAN) is about to trade ex-dividend in the next 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, Kossan Rubber Industries Bhd investors that purchase the stock on or after the 25th of June will not receive the dividend, which will be paid on the 16th of July.

The company's next dividend payment will be RM00.02 per share. Last year, in total, the company distributed RM0.04 to shareholders. Calculating the last year's worth of payments shows that Kossan Rubber Industries Bhd has a trailing yield of 3.8% on the current share price of RM01.06. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

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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. Kossan Rubber Industries Bhd paid out more than half (65%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Kossan Rubber Industries Bhd generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 37% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Kossan Rubber Industries Bhd'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 Kossan Rubber Industries Bhd

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. If earnings fall far enough, the company could be forced to cut its dividend. Kossan Rubber Industries Bhd's earnings have collapsed faster than Wile E Coyote's schemes to trap the Road Runner; down a tremendous 32% a year over the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Kossan Rubber Industries Bhd has delivered an average of 3.8% per year annual increase in its dividend, based on the past 10 years of dividend payments. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.

The Bottom Line

Is Kossan Rubber Industries Bhd an attractive dividend stock, or better left on the shelf? We're not enthused by the declining earnings per share, although at least the company's payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. In summary, it's hard to get excited about Kossan Rubber Industries Bhd from a dividend perspective.

If you want to look further into Kossan Rubber Industries Bhd, it's worth knowing the risks this business faces. For example - Kossan Rubber Industries Bhd has 1 warning sign we think you should be aware of.

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.