PETRONAS Dagangan Berhad (KLSE:PETDAG) is about to trade ex-dividend in the next three 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. The ex-dividend date is important as the process of settlement involves 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 PETRONAS Dagangan Berhad’s shares on or after the 6th of June will not receive the dividend, which will be paid on the 19th of June.
The company’s next dividend payment will be RM00.18 per share, and in the last 12 months, the company paid a total of RM0.80 per share. Looking at the last 12 months of distributions, PETRONAS Dagangan Berhad has a trailing yield of approximately 4.0% on its current stock price of RM019.80. If you buy this business for its dividend, you should have an idea of whether PETRONAS Dagangan Berhad’s dividend is reliable and sustainable. As a result, readers should always check whether PETRONAS Dagangan Berhad has been able to grow its dividends, or if the dividend might be cut.
Check out our latest analysis for PETRONAS Dagangan Berhad
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. Last year, PETRONAS Dagangan Berhad paid out 95% 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. Over the past year it paid out 157% of its free cash flow as dividends, which is uncomfortably high. It’s hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we’d wonder how the company justifies this payout level.
PETRONAS Dagangan Berhad does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.
Cash is slightly more important than profit from a dividend perspective, but given PETRONAS Dagangan Berhad’s payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.
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. 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 not encouraging to see that PETRONAS Dagangan Berhad’s earnings are effectively flat over the past five years. It’s better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. With limited earnings growth and paying out a concerningly high percentage of its earnings, the prospects of future dividend growth don’t look so bright here.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. PETRONAS Dagangan Berhad has seen its dividend decline 2.7% per annum on average over the past 10 years, which is not great to see.
To Sum It Up
Has PETRONAS Dagangan Berhad got what it takes to maintain its dividend payments? Earnings per share are effectively flat, plus PETRONAS Dagangan Berhad’s dividend is not well covered by either earnings or cash flow, which is not great. Overall it doesn’t look like the most suitable dividend stock for a long-term buy and hold investor.
Having said that, if you’re looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with PETRONAS Dagangan Berhad. To help with this, we’ve discovered 1 warning sign for PETRONAS Dagangan 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.
