Why You Might Be Interested In Dancomech Holdings Berhad (KLSE:DANCO) For Its Upcoming 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. Ex-dividend means that investors that purchase the stock on or after the 19th of March will not receive this dividend, which will be paid on the 6th of April.

Dancomech Holdings Berhad's next dividend payment will be RM0.013 per share, on the back of last year when the company paid a total of RM0.02 to shareholders. Based on the last year's worth of payments, Dancomech Holdings Berhad stock has a trailing yield of around 3.0% on the current share price of MYR0.675. If you buy this business for its dividend, you should have an idea of whether Dancomech Holdings Berhad's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Dancomech Holdings 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. That's why it's good to see Dancomech Holdings Berhad paying out a modest 37% of its earnings. A useful secondary check can be to evaluate whether Dancomech Holdings Berhad generated enough free cash flow to afford its dividend. It distributed 41% of its free cash flow as dividends, a comfortable payout level for most companies.

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 how much of its profit Dancomech Holdings Berhad paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Dancomech Holdings Berhad earnings per share are up 4.1% per annum over the last five years. Earnings per share growth in recent times has not been a standout. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Dancomech Holdings Berhad has delivered 7.5% dividend growth per year on average over the past four years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Is Dancomech Holdings Berhad an attractive dividend stock, or better left on the shelf? Earnings per share have been growing moderately, and Dancomech Holdings Berhad is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Dancomech Holdings Berhad is halfway there. It's a promising combination that should mark this company worthy of closer attention.

While it's tempting to invest in Dancomech Holdings Berhad for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 2 warning signs for Dancomech Holdings Berhad you should be aware of.

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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