Read This Before Considering Kuala Lumpur Kepong Berhad (KLSE:KLK) For Its Upcoming RM00.20 Dividend
Kuala Lumpur Kepong Berhad (KLSE:KLK) stock is about to trade ex-dividend in 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase Kuala Lumpur Kepong Berhad's shares before the 9th of July to receive the dividend, which will be paid on the 28th of July.
The company's upcoming dividend is RM00.20 a share, following on from the last 12 months, when the company distributed a total of RM0.60 per share to shareholders. Looking at the last 12 months of distributions, Kuala Lumpur Kepong Berhad has a trailing yield of approximately 2.8% on its current stock price of RM021.70. 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! As a result, readers should always check whether Kuala Lumpur Kepong Berhad has been able to grow its dividends, or if the dividend might be cut.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Kuala Lumpur Kepong Berhad paid out 60% of its earnings to investors last year, a normal payout level for most businesses. 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. It paid out 94% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.
While Kuala Lumpur Kepong Berhad's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Kuala Lumpur Kepong Berhad to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
Check out our latest analysis for Kuala Lumpur Kepong Berhad
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Kuala Lumpur Kepong Berhad, with earnings per share up 6.9% on average over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Kuala Lumpur Kepong Berhad has delivered 2.9% dividend growth per year on average over the past 10 years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
Final Takeaway
Has Kuala Lumpur Kepong Berhad got what it takes to maintain its dividend payments? Earnings per share have grown somewhat, although Kuala Lumpur Kepong Berhad paid out over half its profits and the dividend was not well covered by free cash flow. It's not that we think Kuala Lumpur Kepong Berhad is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
With that being said, if you're still considering Kuala Lumpur Kepong Berhad as an investment, you'll find it beneficial to know what risks this stock is facing. For example, we've found 2 warning signs for Kuala Lumpur Kepong Berhad (1 makes us a bit uncomfortable!) that deserve your attention before investing in the shares.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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.