Do These 3 Checks Before Buying Axiata Group Berhad (KLSE:AXIATA) For Its Upcoming Dividend
It looks like Axiata Group Berhad (KLSE:AXIATA) is about to go ex-dividend in the next four 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. Accordingly, Axiata Group Berhad investors that purchase the stock on or after the 13th of October will not receive the dividend, which will be paid on the 29th of October.
The company's next dividend payment will be RM00.055 per share, and in the last 12 months, the company paid a total of RM0.10 per share. Based on the last year's worth of payments, Axiata Group Berhad stock has a trailing yield of around 6.9% on the current share price of RM01.59. 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 Axiata Group Berhad has been able to grow its dividends, or if the dividend might be cut.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Axiata Group Berhad paid out a disturbingly high 247% of its profit as dividends last year, which makes us concerned there's something we don't fully understand in the business. 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. The company paid out 107% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.
Cash is slightly more important than profit from a dividend perspective, but given Axiata Group Berhad's payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.
Check out our latest analysis for Axiata Group Berhad
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's not encouraging to see that Axiata Group Berhad's earnings are effectively flat 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. Earnings are not growing much and Axiata Group Berhad paid out a lot more than it earned in profit last year. This makes the dividend look potentially unsustainable in the long run.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Axiata Group Berhad's dividend payments per share have declined at 5.8% per year on average over the past 10 years, which is uninspiring.
Final Takeaway
Should investors buy Axiata Group Berhad for the upcoming dividend? Axiata Group Berhad is paying out an uncomfortably high percentage of both earnings and cash flow as dividends, at the same time as its earnings per share are struggling to grow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
With that in mind though, if the poor dividend characteristics of Axiata Group Berhad don't faze you, it's worth being mindful of the risks involved with this business. To help with this, we've discovered 2 warning signs for Axiata Group Berhad that you should be aware of before investing in their 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.