We Wouldn't Be Too Quick To Buy Dancomech Holdings Berhad (KLSE:DANCO) Before It Goes Ex-Dividend
It looks like Dancomech Holdings Berhad (KLSE:DANCO) is about to go ex-dividend in the next 2 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 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 Dancomech Holdings Berhad's shares on or after the 7th of September will not receive the dividend, which will be paid on the 25th of September.
The company's next dividend payment will be RM00.0075 per share, and in the last 12 months, the company paid a total of RM0.02 per share. Based on the last year's worth of payments, Dancomech Holdings Berhad has a trailing yield of 5.9% on the current stock price of RM00.34. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Dancomech Holdings Berhad is paying out an acceptable 54% of its profit, a common payout level among most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 42% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that Dancomech Holdings 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 Dancomech Holdings Berhad
Click here to see how much of its profit Dancomech Holdings 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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Readers will understand then, why we're concerned to see Dancomech Holdings Berhad's earnings per share have dropped 6.7% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Dancomech Holdings Berhad has lifted its dividend by approximately 2.9% a year on average. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.
Final Takeaway
From a dividend perspective, should investors buy or avoid Dancomech Holdings Berhad? 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, while it has some positive characteristics, we're not inclined to race out and buy Dancomech Holdings Berhad today.
With that being said, if dividends aren't your biggest concern with Dancomech Holdings Berhad, you should know about the other risks facing this business. Case in point: We've spotted 2 warning signs for Dancomech Holdings Berhad you should be aware of.
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.