Why It Might Not Make Sense To Buy George Kent (Malaysia) Berhad (KLSE:GKENT) For Its Upcoming Dividend

It looks like George Kent (Malaysia) Berhad (KLSE:GKENT) is about to go ex-dividend in the next three 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. In other words, investors can purchase George Kent (Malaysia) Berhad's shares before the 12th of December in order to be eligible for the dividend, which will be paid on the 24th of December.

The company's next dividend payment will be RM00.0075 per share, and in the last 12 months, the company paid a total of RM0.015 per share. Based on the last year's worth of payments, George Kent (Malaysia) Berhad stock has a trailing yield of around 4.5% on the current share price of RM00.335. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether George Kent (Malaysia) Berhad can afford its dividend, and if the dividend could grow.

See our latest analysis for George Kent (Malaysia) 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. George Kent (Malaysia) Berhad reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If George Kent (Malaysia) Berhad didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Over the last year it paid out 72% of its free cash flow as dividends, within the usual range for most companies.

Click here to see how much of its profit George Kent (Malaysia) Berhad paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. George Kent (Malaysia) Berhad reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. George Kent (Malaysia) Berhad's dividend payments per share have declined at 6.7% per year on average over the past 10 years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

We update our analysis on George Kent (Malaysia) Berhad every 24 hours, so you can always get the latest insights on its financial health, here.

To Sum It Up

Is George Kent (Malaysia) Berhad an attractive dividend stock, or better left on the shelf? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

With that in mind though, if the poor dividend characteristics of George Kent (Malaysia) Berhad don't faze you, it's worth being mindful of the risks involved with this business. To that end, you should learn about the 3 warning signs we've spotted with George Kent (Malaysia) Berhad (including 1 which is a bit concerning).

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.