Here's Why We're Wary Of Buying Berjaya Food Berhad's (KLSE:BJFOOD) For Its Upcoming Dividend

Berjaya Food Berhad (KLSE:BJFOOD) is about to trade ex-dividend in the next three days. If you purchase the stock on or after the 11th of March, you won't be eligible to receive this dividend, when it is paid on the 26th of March.

Berjaya Food Berhad's next dividend payment will be RM0.005 per share. Last year, in total, the company distributed RM0.02 to shareholders. Based on the last year's worth of payments, Berjaya Food Berhad has a trailing yield of 1.3% on the current stock price of MYR1.52. 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! As a result, readers should always check whether Berjaya Food Berhad has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Berjaya Food Berhad

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Berjaya Food Berhad paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If Berjaya Food Berhad didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. The good news is it paid out just 4.4% of its free cash flow in the last year.

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Berjaya Food Berhad was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Berjaya Food Berhad's dividend payments per share have declined at 4.0% per year on average over the past 10 years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

Remember, you can always get a snapshot of Berjaya Food Berhad's financial health, by checking our visualisation of its financial health, here.

Final Takeaway

From a dividend perspective, should investors buy or avoid Berjaya Food Berhad? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

With that being said, if you're still considering Berjaya Food Berhad as an investment, you'll find it beneficial to know what risks this stock is facing. For example, we've found 1 warning sign for Berjaya Food Berhad that we recommend you consider before investing in the business.

If you're in the market for dividend stocks, we recommend checking our list of top 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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