Fajarbaru Builder Group Bhd. (KLSE:FAJAR) Passed Our Checks, And It's About To Pay A RM0.018 Dividend

Readers hoping to buy Fajarbaru Builder Group Bhd. (KLSE:FAJAR) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. This means that investors who purchase shares on or after the 11th of December will not receive the dividend, which will be paid on the 30th of December.

The upcoming dividend for Fajarbaru Builder Group Bhd is RM0.018 per share, increased from last year's total dividends per share of RM0.015. 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! So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Fajarbaru Builder Group Bhd

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. Fajarbaru Builder Group Bhd is paying out just 14% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Fajarbaru Builder Group Bhd generated enough free cash flow to afford its dividend. It paid out 8.3% of its free cash flow as dividends last year, which is conservatively low.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit Fajarbaru Builder Group Bhd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Fajarbaru Builder Group Bhd's earnings per share have risen 19% per annum over the last five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Fajarbaru Builder Group Bhd's dividend payments per share have declined at 7.9% per year on average over the past 10 years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

Final Takeaway

Should investors buy Fajarbaru Builder Group Bhd for the upcoming dividend? Fajarbaru Builder Group Bhd has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Fajarbaru Builder Group Bhd looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

So while Fajarbaru Builder Group Bhd looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example, we've found 3 warning signs for Fajarbaru Builder Group Bhd that we recommend you consider before investing in the business.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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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