Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see Apex Healthcare Berhad (KLSE:AHEALTH) 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. 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. Therefore, if you purchase Apex Healthcare Berhad’s shares on or after the 15th of May, you won’t be eligible to receive the dividend, when it is paid on the 29th of May.
The company’s next dividend payment will be RM00.225 per share, and in the last 12 months, the company paid a total of RM0.062 per share. Based on the last year’s worth of payments, Apex Healthcare Berhad stock has a trailing yield of around 7.4% on the current share price of RM03.36. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
Check out our latest analysis for Apex Healthcare Berhad
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Apex Healthcare Berhad has a low and conservative payout ratio of just 9.0% of its income after tax. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Apex Healthcare Berhad paid out more free cash flow than it generated – 119%, to be precise – last year, which we think is concerningly 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.
Apex Healthcare 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.
Apex Healthcare 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 Apex Healthcare 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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That’s why it’s comforting to see Apex Healthcare Berhad’s earnings have been skyrocketing, up 46% per annum for the past five years. Earnings have been growing quickly, 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. In the last 10 years, Apex Healthcare Berhad has lifted its dividend by approximately 29% a year on average. It’s great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
To Sum It Up
Should investors buy Apex Healthcare Berhad for the upcoming dividend? We like that Apex Healthcare Berhad has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. While it does have some good things going for it, we’re a bit ambivalent and it would take more to convince us of Apex Healthcare Berhad’s dividend merits.
So while Apex Healthcare Berhad looks good from a dividend perspective, it’s always worthwhile being up to date with the risks involved in this stock. To help with this, we’ve discovered 3 warning signs for Apex Healthcare Berhad (2 make us uncomfortable!) that you ought to be aware of before buying the shares.
Generally, we wouldn’t recommend just buying the first dividend stock you see. Here’s a curated list of interesting stocks that are strong dividend payers.
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.
