Kumpulan Kitacon Berhad (KLSE:KITACON) Is About To Go Ex-Dividend, And It Pays A 4.6% Yield

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Kumpulan Kitacon Berhad (KLSE:KITACON) is about to trade ex-dividend in the next 3 days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. Meaning, you will need to purchase Kumpulan Kitacon Berhad's shares before the 4th of September to receive the dividend, which will be paid on the 30th of September.

The company's next dividend payment will be RM00.01 per share. Last year, in total, the company distributed RM0.03 to shareholders. Based on the last year's worth of payments, Kumpulan Kitacon Berhad has a trailing yield of 4.6% on the current stock price of RM00.65. 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 investigate whether Kumpulan Kitacon Berhad can afford its dividend, and if the dividend could grow.

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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. That's why it's good to see Kumpulan Kitacon Berhad paying out a modest 28% 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. Fortunately, it paid out only 30% of its free cash flow in the past year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

View our latest analysis for Kumpulan Kitacon Berhad

Click here to see how much of its profit Kumpulan Kitacon Berhad paid out over the last 12 months.

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. Kumpulan Kitacon Berhad's earnings per share have plummeted approximately 44% a year over the previous five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Kumpulan Kitacon Berhad has seen its dividend decline 9.1% per annum on average over the past three years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

The Bottom Line

Should investors buy Kumpulan Kitacon Berhad for the upcoming dividend? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

While it's tempting to invest in Kumpulan Kitacon Berhad for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 2 warning signs for Kumpulan Kitacon Berhad and you should be aware of them before buying any shares.

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.