Is APM Automotive Holdings Berhad (KLSE:APM) A Strong Dividend Stock?

Is APM Automotive Holdings Berhad (KLSE:APM) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. If you are hoping to live on your dividends, it's important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you'll find our analysis useful.

With APM Automotive Holdings Berhad yielding 4.0% and having paid a dividend for over 10 years, many investors likely find the company quite interesting. It would not be a surprise to discover that many investors buy it for the dividends. That said, the recent jump in the share price will make APM Automotive Holdings Berhad's dividend yield look smaller, even though the company prospects could be improving. There are a few simple ways to reduce the risks of buying APM Automotive Holdings Berhad for its dividend, and we'll go through these below.

Explore this interactive chart for our latest analysis on APM Automotive Holdings Berhad!

Payout ratios

Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. While APM Automotive Holdings Berhad pays a dividend, it reported a loss over the last year. When a company is loss-making, we next need to check to see if its cash flows can support the dividend.

APM Automotive Holdings Berhad's cash payout ratio last year was 23%, which is quite low and suggests that the dividend was thoroughly covered by cash flow.

With a strong net cash balance, APM Automotive Holdings Berhad investors may not have much to worry about in the near term from a dividend perspective.

We update our data on APM Automotive Holdings Berhad every 24 hours, so you can always get our latest analysis of its financial health, here.

Dividend Volatility

From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. APM Automotive Holdings Berhad has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. This dividend has been unstable, which we define as having been cut one or more times over this time. During the past 10-year period, the first annual payment was RM0.2 in 2010, compared to RM0.1 last year. The dividend has shrunk at around 4.6% a year during that period. APM Automotive Holdings Berhad's dividend has been cut sharply at least once, so it hasn't fallen by 4.6% every year, but this is a decent approximation of the long term change.

When a company's per-share dividend falls we question if this reflects poorly on either external business conditions, or the company's capital allocation decisions. Either way, we find it hard to get excited about a company with a declining dividend.

Dividend Growth Potential

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. APM Automotive Holdings Berhad's EPS have fallen by approximately 28% per year during the past five years. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and APM Automotive Holdings Berhad's earnings per share, which support the dividend, have been anything but stable.

Conclusion

Dividend investors should always want to know if a) a company's dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. We're not keen on the fact that APM Automotive Holdings Berhad paid dividends despite reporting a loss over the past year, although fortunately its dividend was covered by cash flow. Second, earnings per share have been in decline, and its dividend has been cut at least once in the past. In summary, APM Automotive Holdings Berhad has a number of shortcomings that we'd find it hard to get past. Things could change, but we think there are likely more attractive alternatives out there.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 3 warning signs for APM Automotive Holdings Berhad (of which 1 is potentially serious!) you should know about.

If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.

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This article by Simply Wall St is general in nature. 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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