Dividend Investors: Don't Be Too Quick To Buy Petron Malaysia Refining & Marketing Bhd (KLSE:PETRONM) For Its Upcoming Dividend

Petron Malaysia Refining & Marketing Bhd (KLSE:PETRONM) is about to trade ex-dividend in the next 3 days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase Petron Malaysia Refining & Marketing Bhd's shares on or after the 19th of June will not receive the dividend, which will be paid on the 3rd of July.

The company's next dividend payment will be RM00.10 per share, on the back of last year when the company paid a total of RM0.10 to shareholders. Looking at the last 12 months of distributions, Petron Malaysia Refining & Marketing Bhd has a trailing yield of approximately 2.6% on its current stock price of RM03.88. If you buy this business for its dividend, you should have an idea of whether Petron Malaysia Refining & Marketing Bhd's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

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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. Petron Malaysia Refining & Marketing Bhd paid out 92% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. A useful secondary check can be to evaluate whether Petron Malaysia Refining & Marketing Bhd generated enough free cash flow to afford its dividend. Fortunately, it paid out only 27% of its free cash flow in the past year.

It's good to see that while Petron Malaysia Refining & Marketing Bhd's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.

Check out our latest analysis for Petron Malaysia Refining & Marketing Bhd

Click here to see how much of its profit Petron Malaysia Refining & Marketing Bhd 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Petron Malaysia Refining & Marketing Bhd's earnings per share have plummeted approximately 30% a year over the previous five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Petron Malaysia Refining & Marketing Bhd's dividend payments per share have declined at 7.4% per year on average over the past nine years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

Final Takeaway

From a dividend perspective, should investors buy or avoid Petron Malaysia Refining & Marketing Bhd? It's never great to see earnings per share declining, especially when a company is paying out 92% of its profit as dividends, which we feel is uncomfortably high. However, the cash payout ratio was much lower - good news from a dividend perspective - which makes us wonder why there is such a mis-match between income and cashflow. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Petron Malaysia Refining & Marketing Bhd.

With that in mind though, if the poor dividend characteristics of Petron Malaysia Refining & Marketing Bhd don't faze you, it's worth being mindful of the risks involved with this business. For example - Petron Malaysia Refining & Marketing Bhd has 2 warning signs we think 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.