Is It Smart To Buy Aeon Co. (M) Bhd. (KLSE:AEON) Before It Goes Ex-Dividend?

It looks like Aeon Co. (M) Bhd. (KLSE:AEON) is about to go ex-dividend in the next 4 days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Meaning, you will need to purchase Aeon (M) Bhd's shares before the 4th of June to receive the dividend, which will be paid on the 19th of June.

The company's next dividend payment will be RM00.045 per share, on the back of last year when the company paid a total of RM0.045 to shareholders. Based on the last year's worth of payments, Aeon (M) Bhd has a trailing yield of 3.1% on the current stock price of RM01.44. If you buy this business for its dividend, you should have an idea of whether Aeon (M) Bhd's dividend is reliable and sustainable. So we need to investigate whether Aeon (M) Bhd can afford its dividend, and if the dividend could grow.

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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. Aeon (M) Bhd paid out a comfortable 46% of its profit last year. 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. It paid out 18% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Aeon (M) Bhd's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Check out our latest analysis for Aeon (M) Bhd

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. 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 Aeon (M) Bhd earnings per share are up 4.9% per annum over the last five years. Recent earnings growth has been limited. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Aeon (M) Bhd's dividend payments per share have declined at 1.0% per year on average over the past 10 years, which is uninspiring.

Final Takeaway

From a dividend perspective, should investors buy or avoid Aeon (M) Bhd? Earnings per share growth has been growing somewhat, and Aeon (M) Bhd is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Aeon (M) Bhd is halfway there. It's a promising combination that should mark this company worthy of closer attention.

While it's tempting to invest in Aeon (M) Bhd for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 1 warning sign for Aeon (M) Bhd you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.