Some investors rely on dividends for growing their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that Heineken Malaysia Berhad (KLSE:HEIM) is about to go ex-dividend in just 4 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 important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company’s books on the record date. This means that investors who purchase Heineken Malaysia Berhad’s shares on or after the 9th of June will not receive the dividend, which will be paid on the 7th of July.
The company’s next dividend payment will be RM01.12 per share, on the back of last year when the company paid a total of RM1.52 to shareholders. Based on the last year’s worth of payments, Heineken Malaysia Berhad has a trailing yield of 7.5% on the current stock price of RM020.16. If you buy this business for its dividend, you should have an idea of whether Heineken Malaysia Berhad’s dividend is reliable and sustainable. As a result, readers should always check whether Heineken Malaysia 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. Last year, Heineken Malaysia Berhad paid out 104% of its income as dividends, which is above a level that we’re comfortable with, especially if the company needs to reinvest in its 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. It paid out 86% of its free cash flow as dividends, which is within usual limits but will limit the company’s ability to lift the dividend if there’s no growth.
It’s good to see that while Heineken Malaysia Berhad’s dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we’d view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.
Businesses with strong growth prospects usually make the best dividend payers, because it’s easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It’s encouraging to see Heineken Malaysia Berhad has grown its earnings rapidly, up 23% a year for the past five years.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Heineken Malaysia Berhad has lifted its dividend by approximately 7.9% a year on average. It’s encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Is Heineken Malaysia Berhad worth buying for its dividend? Heineken Malaysia Berhad has been growing its earnings per share nicely, although judging by the difference between its profit and cashflow payout ratios, the company might have reported some write-offs over the last year. All things considered, we are not particularly enthused about Heineken Malaysia Berhad from a dividend perspective.
If you’re not too concerned about Heineken Malaysia Berhad’s ability to pay dividends, you should still be mindful of some of the other risks that this business faces. For example – Heineken Malaysia Berhad has 1 warning sign we think you should be aware of.
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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.
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