Don't Buy CEKD Berhad (KLSE:CEKD) For Its Next Dividend Without Doing These Checks

CEKD Berhad (KLSE:CEKD) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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 CEKD Berhad's shares on or after the 5th of December will not receive the dividend, which will be paid on the 20th of December.

The company's next dividend payment will be RM00.0075 per share, on the back of last year when the company paid a total of RM0.02 to shareholders. Calculating the last year's worth of payments shows that CEKD Berhad has a trailing yield of 4.2% on the current share price of RM00.475. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether CEKD Berhad has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for CEKD Berhad

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. CEKD Berhad paid out more than half (57%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether CEKD Berhad generated enough free cash flow to afford its dividend. Over the last year it paid out 74% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that CEKD Berhad's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit CEKD 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 fall far enough, the company could be forced to cut its dividend. So we're not too excited that CEKD Berhad's earnings are down 3.5% a year over the past five years.

Unfortunately CEKD Berhad has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

The Bottom Line

Has CEKD Berhad got what it takes to maintain its dividend payments? While earnings per share are shrinking, it's encouraging to see that at least CEKD Berhad's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of CEKD Berhad.

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 CEKD Berhad. Case in point: We've spotted 1 warning sign for CEKD Berhad you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.