Yahoo Finance Don't Buy V.S. Industry Berhad (KLSE:VS) For Its Next Dividend Without Doing These Checks
V.S. Industry Berhad (KLSE:VS) stock is about to trade ex-dividend in four days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. Accordingly, V.S. Industry Berhad investors that purchase the stock on or after the 11th of July will not receive the dividend, which will be paid on the 28th of July.
The company's next dividend payment will be RM0.004 per share, on the back of last year when the company paid a total of RM0.02 to shareholders. Based on the last year's worth of payments, V.S. Industry Berhad has a trailing yield of 2.3% on the current stock price of MYR0.865. 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 investigate whether V.S. Industry Berhad can afford its dividend, and if the dividend could grow.
View our latest analysis for V.S. Industry 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. V.S. Industry Berhad paid out 51% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether V.S. Industry Berhad generated enough free cash flow to afford its dividend. V.S. Industry Berhad paid out more free cash flow than it generated - 123%, 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.
V.S. Industry 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 V.S. Industry 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?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Readers will understand then, why we're concerned to see V.S. Industry Berhad's earnings per share have dropped 5.5% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, V.S. Industry Berhad has lifted its dividend by approximately 5.2% a year on average. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.
Final Takeaway
Has V.S. Industry Berhad got what it takes to maintain its dividend payments? It's definitely not great to see earnings per share shrinking. The company paid out an acceptable percentage of its income, but an uncomfortably high percentage of its cash flow over the past year. 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 V.S. Industry Berhad and want to know more, you'll find it very useful to know what risks this stock faces. For example - V.S. Industry Berhad has 2 warning signs we think you should be aware of.
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.
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