Read This Before Considering Kumpulan Perangsang Selangor Berhad (KLSE:KPS) For Its Upcoming RM00.01 Dividend

Kumpulan Perangsang Selangor Berhad (KLSE:KPS) stock is about to trade ex-dividend in 3 days. 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. In other words, investors can purchase Kumpulan Perangsang Selangor Berhad's shares before the 12th of December in order to be eligible for the dividend, which will be paid on the 30th of December.

The company's next dividend payment will be RM00.01 per share, and in the last 12 months, the company paid a total of RM0.02 per share. Last year's total dividend payments show that Kumpulan Perangsang Selangor Berhad has a trailing yield of 2.9% on the current share price of RM00.68. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Kumpulan Perangsang Selangor 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. Kumpulan Perangsang Selangor Berhad has a low and conservative payout ratio of just 20% of its income after tax. 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. Kumpulan Perangsang Selangor Berhad paid out more free cash flow than it generated - 188%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

Kumpulan Perangsang Selangor Berhad does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

While Kumpulan Perangsang Selangor Berhad's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Kumpulan Perangsang Selangor Berhad's ability to maintain its dividend.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Kumpulan Perangsang Selangor Berhad earnings per share are up 8.1% per annum over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Kumpulan Perangsang Selangor Berhad has seen its dividend decline 6.0% per annum on average over the past 10 years, which is not great to see. 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.

To Sum It Up

Is Kumpulan Perangsang Selangor Berhad worth buying for its dividend? Kumpulan Perangsang Selangor Berhad has seen its earnings per share grow steadily and paid out less than half its profit over the last year. Unfortunately, its dividend was not well covered by free cash flow. Overall, it's hard to get excited about Kumpulan Perangsang Selangor Berhad from a dividend perspective.

However if you're still interested in Kumpulan Perangsang Selangor Berhad as a potential investment, you should definitely consider some of the risks involved with Kumpulan Perangsang Selangor Berhad. For example, we've found 4 warning signs for Kumpulan Perangsang Selangor Berhad (1 doesn't sit too well with us!) that deserve your attention before investing in the shares.

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.