Should Income Investors Look At Dancomech Holdings Berhad (KLSE:DANCO) Before Its Ex-Dividend?

Readers hoping to buy Dancomech Holdings Berhad (KLSE:DANCO) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order 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, Dancomech Holdings Berhad investors that purchase the stock on or after the 19th of March will not receive the dividend, which will be paid on the 4th of April.

The company's next dividend payment will be RM00.015 per share. Last year, in total, the company distributed RM0.022 to shareholders. Calculating the last year's worth of payments shows that Dancomech Holdings Berhad has a trailing yield of 4.9% on the current share price of RM00.46. 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! We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Dancomech Holdings Berhad

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Fortunately Dancomech Holdings Berhad's payout ratio is modest, at just 47% of profit. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year, it paid out more than three-quarters (88%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's positive to see that Dancomech Holdings 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?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's not encouraging to see that Dancomech Holdings Berhad's earnings are effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

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, seven years ago, Dancomech Holdings Berhad has lifted its dividend by approximately 6.0% a year on average.

The Bottom Line

Has Dancomech Holdings Berhad got what it takes to maintain its dividend payments? Earnings per share are down very slightly in recent times, and Dancomech Holdings Berhad paid out less half its profit and more than half its cash flow as dividends, which is not the worst combination but could be better. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

However if you're still interested in Dancomech Holdings Berhad as a potential investment, you should definitely consider some of the risks involved with Dancomech Holdings Berhad. In terms of investment risks, we've identified 2 warning signs with Dancomech Holdings Berhad and understanding them should be part of your investment process.

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.