Yahoo Finance Here's Why We're Wary Of Buying Muda Holdings Berhad's (KLSE:MUDA) For Its Upcoming Dividend
Muda Holdings Berhad (KLSE:MUDA) is about to trade ex-dividend in the next three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible 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, Muda Holdings Berhad investors that purchase the stock on or after the 28th of June will not receive the dividend, which will be paid on the 24th of July.
The company's next dividend payment will be RM00.03 per share. Last year, in total, the company distributed RM0.03 to shareholders. Looking at the last 12 months of distributions, Muda Holdings Berhad has a trailing yield of approximately 2.1% on its current stock price of RM01.45. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.
View our latest analysis for Muda Holdings Berhad
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Muda Holdings Berhad's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Muda Holdings Berhad didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Fortunately, it paid out only 26% of its free cash flow in the past year.
Click here to see how much of its profit Muda Holdings Berhad paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Muda Holdings Berhad reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Muda Holdings Berhad's dividend payments are broadly unchanged compared to where they were 10 years ago. If a company's dividend stays flat while earnings are in decline, this is typically a sign that it is paying out a larger percentage of its earnings. This can become unsustainable if earnings fall far enough.
Remember, you can always get a snapshot of Muda Holdings Berhad's financial health, by checking our visualisation of its financial health, here.
The Bottom Line
Should investors buy Muda Holdings Berhad for the upcoming dividend? It's hard to get used to Muda Holdings Berhad paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not that we think Muda Holdings Berhad is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
With that being said, if you're still considering Muda Holdings Berhad as an investment, you'll find it beneficial to know what risks this stock is facing. For example, Muda Holdings Berhad has 4 warning signs (and 2 which don't sit too well with us) we think you should know about.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
