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Don't Buy Azeus Systems Holdings Ltd. (SGX:BBW) For Its Next Dividend Without Doing These Checks

Simply Wall St

Readers hoping to buy Azeus Systems Holdings Ltd. (SGX:BBW) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Investors can purchase shares before the 1st of October in order to be eligible for this dividend, which will be paid on the 16th of October.

Azeus Systems Holdings's next dividend payment will be S$0.2 per share, on the back of last year when the company paid a total of S$0.2 to shareholders. Based on the last year's worth of payments, Azeus Systems Holdings stock has a trailing yield of around 4.4% on the current share price of SGD0.84. 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 check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Azeus Systems Holdings

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. That's why it's good to see Azeus Systems Holdings paying out a modest 50% of its earnings. 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.

Click here to see how much of its profit Azeus Systems Holdings paid out over the last 12 months.

SGX:BBW Historical Dividend Yield, September 26th 2019

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're discomforted by Azeus Systems Holdings's 7.5% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Azeus Systems Holdings has delivered an average of 23% per year annual increase in its dividend, based on the past ten years of dividend payments.

To Sum It Up

From a dividend perspective, should investors buy or avoid Azeus Systems Holdings? Azeus Systems Holdings's earnings per share have fallen noticeably and, although it paid out less than half its profit as dividends last year, it paid out a disconcertingly high percentage of its cashflow, which is not a great combination. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

Want to learn more about Azeus Systems Holdings's dividend performance? Check out this visualisation of its historical revenue and earnings growth.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.