Don't Race Out To Buy Chin Hin Group Berhad (KLSE:CHINHIN) Just Because It's Going Ex-Dividend

Chin Hin Group Berhad (KLSE:CHINHIN) is about to trade ex-dividend in the next 4 days. You will need to purchase shares before the 23rd of March to receive the dividend, which will be paid on the 5th of April.

Chin Hin Group Berhad's next dividend payment will be RM0.01 per share, and in the last 12 months, the company paid a total of RM0.02 per share. Looking at the last 12 months of distributions, Chin Hin Group Berhad has a trailing yield of approximately 1.1% on its current stock price of MYR1.87. 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 investigate whether Chin Hin Group Berhad can afford its dividend, and if the dividend could grow.

See our latest analysis for Chin Hin Group 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. Chin Hin Group Berhad paid out more than half (54%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Chin Hin Group Berhad generated enough free cash flow to afford its dividend. Over the last year it paid out 64% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Chin Hin Group 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 the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're discomforted by Chin Hin Group Berhad's 11% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Chin Hin Group Berhad's dividend payments per share have declined at 7.8% per year on average over the past five years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

Final Takeaway

From a dividend perspective, should investors buy or avoid Chin Hin Group Berhad? It's never good to see earnings per share shrinking, but at least the dividend payout ratios appear reasonable. We're aware though that if earnings continue to decline, the dividend could be at risk. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

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 Chin Hin Group Berhad. Our analysis shows 3 warning signs for Chin Hin Group Berhad that we strongly recommend you have a look at before investing in the company.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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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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