Should You Buy Texchem Resources Bhd (KLSE:TEXCHEM) For Its Upcoming Dividend?

Readers hoping to buy Texchem Resources Bhd (KLSE:TEXCHEM) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase Texchem Resources Bhd's shares before the 9th of March in order to receive the dividend, which the company will pay on the 24th of March.

The company's next dividend payment will be RM0.05 per share. Last year, in total, the company distributed RM0.16 to shareholders. Calculating the last year's worth of payments shows that Texchem Resources Bhd has a trailing yield of 9.1% on the current share price of MYR1.76. If you buy this business for its dividend, you should have an idea of whether Texchem Resources Bhd's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Texchem Resources Bhd

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Texchem Resources Bhd paid out more than half (70%) of its earnings last year, which is a regular payout ratio for most companies. 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. It distributed 26% of its free cash flow as dividends, a comfortable payout level for most companies.

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 Texchem Resources 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. 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 encouraging to see Texchem Resources Bhd has grown its earnings rapidly, up 61% a year for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. With a reasonable payout ratio, profits being reinvested, and some earnings growth, Texchem Resources Bhd could have strong prospects for future increases to the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Texchem Resources Bhd has seen its dividend decline 2.8% per annum on average over the past eight years, which is not great to see. Texchem Resources Bhd is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

Final Takeaway

Has Texchem Resources Bhd got what it takes to maintain its dividend payments? Texchem Resources Bhd's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. Texchem Resources Bhd looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

So while Texchem Resources 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 2 warning signs for Texchem Resources Bhd that we recommend you consider before investing in the business.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.