Dividend Investors: Don't Be Too Quick To Buy Scicom (MSC) Berhad (KLSE:SCICOM) For Its Upcoming 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 Scicom (MSC) Berhad (KLSE:SCICOM) is about to go ex-dividend in just 3 days. 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase Scicom (MSC) Berhad's shares on or after the 12th of December will not receive the dividend, which will be paid on the 27th of December.

The company's next dividend payment will be RM00.02 per share. Last year, in total, the company distributed RM0.05 to shareholders. Last year's total dividend payments show that Scicom (MSC) Berhad has a trailing yield of 5.8% on the current share price of RM00.855. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Scicom (MSC) Berhad has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Scicom (MSC) 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. Scicom (MSC) Berhad paid out 94% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. A useful secondary check can be to evaluate whether Scicom (MSC) Berhad generated enough free cash flow to afford its dividend. Over the last year it paid out 61% of its free cash flow as dividends, within the usual range for most companies.

It's good to see that while Scicom (MSC) Berhad's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if this were to happen repeatedly, we'd be concerned about whether the dividend is sustainable in a downturn.

Click here to see how much of its profit Scicom (MSC) Berhad paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Scicom (MSC) Berhad earnings per share are up 4.0% per annum over the last five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Scicom (MSC) Berhad has delivered an average of 7.2% per year annual increase in its dividend, based on the past 10 years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

From a dividend perspective, should investors buy or avoid Scicom (MSC) Berhad? Earnings per share have not grown all that much, and the company is paying out an uncomfortably high percentage of its income. Fortunately it paid out a lower percentage of its cash flow. It's not that we think Scicom (MSC) 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 Scicom (MSC) Berhad as an investment, you'll find it beneficial to know what risks this stock is facing. For example - Scicom (MSC) Berhad has 2 warning signs we think you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.