It Might Not Be A Great Idea To Buy Carlsberg Brewery Malaysia Berhad (KLSE:CARLSBG) For Its Next Dividend
Carlsberg Brewery Malaysia Berhad (KLSE:CARLSBG) is about to trade ex-dividend in the next four days. The ex-dividend date occurs one day 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. 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. Accordingly, Carlsberg Brewery Malaysia Berhad investors that purchase the stock on or after the 25th of April will not receive the dividend, which will be paid on the 18th of May.
The company's upcoming dividend is RM0.25 a share, following on from the last 12 months, when the company distributed a total of RM0.76 per share to shareholders. Based on the last year's worth of payments, Carlsberg Brewery Malaysia Berhad has a trailing yield of 4.1% on the current stock price of MYR21.7. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
See our latest analysis for Carlsberg Brewery Malaysia Berhad
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. It paid out 85% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline. 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. Carlsberg Brewery Malaysia Berhad paid out more free cash flow than it generated - 125%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
Carlsberg Brewery Malaysia Berhad paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Carlsberg Brewery Malaysia Berhad to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
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. 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 encouraged by the steady growth at Carlsberg Brewery Malaysia Berhad, with earnings per share up 7.5% 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.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Carlsberg Brewery Malaysia Berhad has delivered 2.0% dividend growth per year on average over the past 10 years.
To Sum It Up
From a dividend perspective, should investors buy or avoid Carlsberg Brewery Malaysia Berhad? Carlsberg Brewery Malaysia Berhad is paying out a reasonable percentage of its income and an uncomfortably high 125% of its cash flow as dividends. At least earnings per share have been growing steadily. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
Although, if you're still interested in Carlsberg Brewery Malaysia Berhad and want to know more, you'll find it very useful to know what risks this stock faces. For instance, we've identified 2 warning signs for Carlsberg Brewery Malaysia Berhad (1 is a bit concerning) 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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