Readers hoping to buy UMS Holdings Berhad (KLSE:UMS) 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 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. Thus, you can purchase UMS Holdings Berhad's shares before the 14th of March in order to receive the dividend, which the company will pay on the 29th of March.
The company's next dividend payment will be RM0.06 per share, on the back of last year when the company paid a total of RM0.06 to shareholders. Looking at the last 12 months of distributions, UMS Holdings Berhad has a trailing yield of approximately 3.0% on its current stock price of MYR2. 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! As a result, readers should always check whether UMS Holdings Berhad has been able to grow its dividends, or if the dividend might be cut.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. UMS Holdings Berhad paid out 57% of its earnings to investors last year, a normal payout level for most businesses. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. UMS Holdings Berhad's earnings per share have fallen at approximately 11% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. UMS Holdings Berhad's dividend payments per share have declined at 5.0% 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.
Is UMS Holdings Berhad worth buying for its dividend? UMS Holdings Berhad had an average payout ratio, but its free cash flow was lower and earnings per share have been declining. It's not that we think UMS Holdings Berhad is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
With that being said, if you're still considering UMS Holdings Berhad as an investment, you'll find it beneficial to know what risks this stock is facing. Every company has risks, and we've spotted 3 warning signs for UMS Holdings Berhad (of which 1 is a bit concerning!) you should know about.
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.