Nestlé (Malaysia) Berhad (KLSE:NESTLE) Stock Goes Ex-Dividend In Just Four Days

Nestlé (Malaysia) Berhad (KLSE:NESTLE) is about to trade ex-dividend in the next 4 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Nestlé (Malaysia) Berhad's shares on or after the 2nd of September will not receive the dividend, which will be paid on the 1st of October.

The company's next dividend payment will be RM00.80 per share, and in the last 12 months, the company paid a total of RM2.20 per share. Based on the last year's worth of payments, Nestlé (Malaysia) Berhad has a trailing yield of 2.2% on the current stock price of RM0100.10. 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 typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Its dividend payout ratio is 90% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be concerned if earnings began to decline. A useful secondary check can be to evaluate whether Nestlé (Malaysia) Berhad generated enough free cash flow to afford its dividend. Fortunately, it paid out only 49% of its free cash flow in the past year.

It's positive to see that Nestlé (Malaysia) 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.

See our latest analysis for Nestlé (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 that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about Nestlé (Malaysia) Berhad's flat earnings over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. A payout ratio of 90% looks like a tacit signal from management that reinvestment opportunities in the business are low. In line with limited earnings growth in recent years, this is not the most appealing combination.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Nestlé (Malaysia) Berhad has delivered an average of 5.4% per year annual increase in its dividend, based on the past 10 years of dividend payments.

To Sum It Up

From a dividend perspective, should investors buy or avoid Nestlé (Malaysia) Berhad? It's unfortunate that earnings per share have not grown, and we'd note that Nestlé (Malaysia) Berhad is paying out lower percentage of its cashflow than its profit, but overall the dividend looks well covered by earnings. All things considered, we are not particularly enthused about Nestlé (Malaysia) Berhad from a dividend perspective.

So while Nestlé (Malaysia) Berhad looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example, we've found 2 warning signs for Nestlé (Malaysia) Berhad that we recommend you consider before investing in the business.

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.