Petron Malaysia Refining & Marketing Bhd (KLSE:PETRONM) Could Be A Buy For Its Upcoming Dividend

It looks like Petron Malaysia Refining & Marketing Bhd (KLSE:PETRONM) is about to go ex-dividend in the next three days. The ex-dividend date occurs one day 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase Petron Malaysia Refining & Marketing Bhd's shares before the 14th of June in order to be eligible for the dividend, which will be paid on the 4th of July.

The company's next dividend payment will be RM00.23 per share. Last year, in total, the company distributed RM0.23 to shareholders. Based on the last year's worth of payments, Petron Malaysia Refining & Marketing Bhd has a trailing yield of 4.6% on the current stock price of RM05.00. 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.

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

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Petron Malaysia Refining & Marketing Bhd paid out a comfortable 27% 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. The good news is it paid out just 19% of its free cash flow in the last year.

It's positive to see that Petron Malaysia Refining & Marketing 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.

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?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about Petron Malaysia Refining & Marketing Bhd's flat earnings over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. Earnings per share growth in recent times has not been a standout. 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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Petron Malaysia Refining & Marketing Bhd has delivered an average of 5.1% per year annual increase in its dividend, based on the past 10 years of dividend payments.

The Bottom Line

Is Petron Malaysia Refining & Marketing Bhd an attractive dividend stock, or better left on the shelf? The company has barely grown earnings per share over this time, but at least it's paying out a decently low percentage of its earnings and cashflow as dividends. This could suggest management is reinvesting in future growth opportunities. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine strong earnings per share growth with a low payout ratio, and Petron Malaysia Refining & Marketing Bhd is halfway there. There's a lot to like about Petron Malaysia Refining & Marketing Bhd, and we would prioritise taking a closer look at it.

In light of that, while Petron Malaysia Refining & Marketing Bhd has an appealing dividend, it's worth knowing the risks involved with this stock. For example - Petron Malaysia Refining & Marketing Bhd has 1 warning sign we think you should be aware of.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.