Don't Buy Tien Wah Press Holdings Berhad (KLSE:TIENWAH) For Its Next Dividend Without Doing These Checks

Readers hoping to buy Tien Wah Press Holdings Berhad (KLSE:TIENWAH) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. 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. In other words, investors can purchase Tien Wah Press Holdings Berhad's shares before the 5th of July in order to be eligible for the dividend, which will be paid on the 31st of July.

The company's next dividend payment will be RM00.028 per share, on the back of last year when the company paid a total of RM0.056 to shareholders. Looking at the last 12 months of distributions, Tien Wah Press Holdings Berhad has a trailing yield of approximately 6.5% on its current stock price of RM00.865. If you buy this business for its dividend, you should have an idea of whether Tien Wah Press Holdings Berhad's dividend is reliable and sustainable. So we need to investigate whether Tien Wah Press Holdings Berhad can afford its dividend, and if the dividend could grow.

View our latest analysis for Tien Wah Press Holdings Berhad

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. Tien Wah Press Holdings Berhad paid out 104% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. 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. Tien Wah Press Holdings Berhad paid out more free cash flow than it generated - 194%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

As Tien Wah Press Holdings Berhad's dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.

Click here to see how much of its profit Tien Wah Press Holdings 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. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Tien Wah Press Holdings Berhad's earnings have been skyrocketing, up 24% per annum for the past five years. Tien Wah Press Holdings Berhad's dividend was not well covered by earnings, although at least its earnings per share are growing quickly. Generally, when a company is growing this quickly and paying out all of its earnings as dividends, it can suggest either that the company is borrowing heavily to fund its growth, or that earnings growth is likely to slow due to lack of reinvestment.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Tien Wah Press Holdings Berhad has seen its dividend decline 9.7% per annum on average over the past 10 years, which is not great to see. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

Final Takeaway

Is Tien Wah Press Holdings Berhad an attractive dividend stock, or better left on the shelf? While it's nice to see earnings per share growing, we're curious about how Tien Wah Press Holdings Berhad intends to continue growing, or maintain the dividend in a downturn given that it's paying out such a high percentage of its earnings and cashflow. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

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 Tien Wah Press Holdings Berhad. To that end, you should learn about the 2 warning signs we've spotted with Tien Wah Press Holdings Berhad (including 1 which is a bit concerning).

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.

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