Here's Why We're Wary Of Buying ELK-Desa Resources Berhad's (KLSE:ELKDESA) For Its Upcoming Dividend

ELK-Desa Resources Berhad (KLSE:ELKDESA) stock is about to trade ex-dividend in 3 days. Ex-dividend means that investors that purchase the stock on or after the 4th of December will not receive this dividend, which will be paid on the 18th of December.

ELK-Desa Resources Berhad's next dividend payment will be RM0.025 per share, and in the last 12 months, the company paid a total of RM0.063 per share. Based on the last year's worth of payments, ELK-Desa Resources Berhad stock has a trailing yield of around 4.3% on the current share price of MYR1.44. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for ELK-Desa Resources 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. ELK-Desa Resources Berhad is paying out an acceptable 66% of its profit, a common payout level among most companies.

Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.

Click here to see how much of its profit ELK-Desa Resources Berhad paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're discomforted by ELK-Desa Resources Berhad's 8.9% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. ELK-Desa Resources Berhad's dividend payments are effectively flat on where they were eight years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.

Final Takeaway

Should investors buy ELK-Desa Resources Berhad for the upcoming dividend? Earnings per share have been declining and the company is paying out more than half its profits to shareholders; not an enticing combination. This is not an overtly appealing combination of characteristics, and we're just not that interested in this company's dividend.

With that being said, if you're still considering ELK-Desa Resources Berhad as an investment, you'll find it beneficial to know what risks this stock is facing. For example - ELK-Desa Resources Berhad has 2 warning signs we think 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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