Do These 3 Checks Before Buying Nova Wellness Group Berhad (KLSE:NOVA) For Its Upcoming Dividend
Nova Wellness Group Berhad (KLSE:NOVA) is about to trade ex-dividend in the next three 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 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. In other words, investors can purchase Nova Wellness Group Berhad's shares before the 8th of September in order to be eligible for the dividend, which will be paid on the 23rd of September.
The company's next dividend payment will be RM00.016 per share, on the back of last year when the company paid a total of RM0.016 to shareholders. Based on the last year's worth of payments, Nova Wellness Group Berhad stock has a trailing yield of around 4.3% on the current share price of RM00.375. 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 investigate whether Nova Wellness Group Berhad can afford its dividend, and if the dividend could grow.
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. Nova Wellness Group Berhad is paying out an acceptable 55% of its profit, a common payout level among most companies. 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. Over the last year it paid out 74% of its free cash flow as dividends, within the usual range for most companies.
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 Nova Wellness Group Berhad
Click here to see how much of its profit Nova Wellness Group Berhad paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see Nova Wellness Group Berhad's earnings per share have dropped 8.5% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Nova Wellness Group Berhad has seen its dividend decline 1.5% per annum on average over the past eight years, which is not great to see.
The Bottom Line
From a dividend perspective, should investors buy or avoid Nova Wellness Group Berhad? While earnings per share are shrinking, it's encouraging to see that at least Nova Wellness Group Berhad's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Nova Wellness Group Berhad. Our analysis shows 2 warning signs for Nova Wellness Group Berhad and you should be aware of these before buying any shares.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.