Should You Buy Magni-Tech Industries Berhad (KLSE:MAGNI) For Its Upcoming Dividend?

Magni-Tech Industries Berhad (KLSE:MAGNI) stock is about to trade ex-dividend in 4 days. Ex-dividend means that investors that purchase the stock on or after the 22nd of March will not receive this dividend, which will be paid on the 8th of April.

Magni-Tech Industries Berhad's next dividend payment will be RM0.045 per share. Last year, in total, the company distributed RM0.094 to shareholders. Based on the last year's worth of payments, Magni-Tech Industries Berhad stock has a trailing yield of around 3.9% on the current share price of MYR2.43. 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! So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Magni-Tech Industries 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. Fortunately Magni-Tech Industries Berhad's payout ratio is modest, at just 30% of profit. A useful secondary check can be to evaluate whether Magni-Tech Industries Berhad generated enough free cash flow to afford its dividend. Dividends consumed 70% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

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 Magni-Tech Industries Berhad paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Magni-Tech Industries Berhad's earnings per share have been growing at 19% a year for the past five years. Magni-Tech Industries Berhad has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Magni-Tech Industries Berhad has lifted its dividend by approximately 15% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

Final Takeaway

Is Magni-Tech Industries Berhad worth buying for its dividend? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. Magni-Tech Industries Berhad looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

So while Magni-Tech Industries Berhad looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For instance, we've identified 2 warning signs for Magni-Tech Industries Berhad (1 makes us a bit uncomfortable) 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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