Don't Buy Wellcall Holdings Berhad (KLSE:WELLCAL) For Its Next Dividend Without Doing These Checks

Wellcall Holdings Berhad (KLSE:WELLCAL) stock is about to trade ex-dividend in 3 days. You can purchase shares before the 9th of March in order to receive the dividend, which the company will pay on the 26th of March.

Wellcall Holdings Berhad's next dividend payment will be RM0.014 per share. Last year, in total, the company distributed RM0.05 to shareholders. Last year's total dividend payments show that Wellcall Holdings Berhad has a trailing yield of 4.6% on the current share price of MYR1.07. If you buy this business for its dividend, you should have an idea of whether Wellcall Holdings Berhad's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Wellcall Holdings Berhad

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. It paid out 86% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in earnings. 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. Over the last year it paid out 50% of its free cash flow as dividends, within the usual range 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 the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Readers will understand then, why we're concerned to see Wellcall Holdings Berhad's earnings per share have dropped 7.2% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Wellcall Holdings Berhad has increased its dividend at approximately 4.9% a year on average. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Wellcall Holdings Berhad is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.

Final Takeaway

Has Wellcall Holdings Berhad got what it takes to maintain its dividend payments? While earnings per share are shrinking, it's encouraging to see that at least Wellcall Holdings Berhad's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Wellcall Holdings Berhad.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Wellcall Holdings Berhad. Case in point: We've spotted 1 warning sign for Wellcall Holdings Berhad you should be aware of.

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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