Don't Race Out To Buy MTAG Group Berhad (KLSE:MTAG) Just Because It's Going Ex-Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that MTAG Group Berhad (KLSE:MTAG) is about to go ex-dividend in just 4 days. If you purchase the stock on or after the 7th of December, you won't be eligible to receive this dividend, when it is paid on the 21st of December.

MTAG Group Berhad's next dividend payment will be RM0.01 per share. Last year, in total, the company distributed RM0.04 to shareholders. Based on the last year's worth of payments, MTAG Group Berhad stock has a trailing yield of around 5.1% on the current share price of MYR0.78. If you buy this business for its dividend, you should have an idea of whether MTAG Group Berhad's dividend is reliable and sustainable. So we need to investigate whether MTAG Group Berhad can afford its dividend, and if the dividend could grow.

View our latest analysis for MTAG Group 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. MTAG Group Berhad paid out 57% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year it paid out 72% 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 how much of its profit MTAG Group Berhad paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. MTAG Group Berhad's earnings per share have plummeted approximately 61% a year over the previous five years.

Unfortunately MTAG Group Berhad has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

Final Takeaway

Should investors buy MTAG Group Berhad for the upcoming dividend? While earnings per share are shrinking, it's encouraging to see that at least MTAG Group Berhad's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. Bottom line: MTAG Group Berhad has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

With that in mind though, if the poor dividend characteristics of MTAG Group Berhad don't faze you, it's worth being mindful of the risks involved with this business. Case in point: We've spotted 1 warning sign for MTAG Group Berhad you should be aware of.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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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