Here's Why We're Wary Of Buying Apollo Food Holdings Berhad's (KLSE:APOLLO) For Its Upcoming Dividend

Apollo Food Holdings Berhad (KLSE:APOLLO) is about to trade ex-dividend in the next 3 days. Investors can purchase shares before the 10th of December in order to be eligible for this dividend, which will be paid on the 8th of January.

The upcoming dividend for Apollo Food Holdings Berhad will put a total of RM0.30 per share in shareholders' pockets, up from last year's total dividends of RM0.20. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Apollo Food Holdings 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. Last year Apollo Food Holdings Berhad paid out 102% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. The company paid out 93% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.

Cash is slightly more important than profit from a dividend perspective, but given Apollo Food Holdings Berhad's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.

Click here to see how much of its profit Apollo Food Holdings Berhad paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're discomforted by Apollo Food Holdings Berhad's 9.1% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Apollo Food Holdings Berhad has seen its dividend decline 2.2% per annum on average over the past 10 years, which is not great to see. 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.

The Bottom Line

Should investors buy Apollo Food Holdings Berhad for the upcoming dividend? It's looking like an unattractive opportunity, with its earnings per share declining, while, paying out an uncomfortably high percentage of both its profits (102%) and cash flow as dividends. Unless there are grounds to believe a turnaround is imminent, this is one of the least attractive dividend stocks under this analysis. It's not that we think Apollo Food Holdings Berhad is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Although, if you're still interested in Apollo Food Holdings Berhad and want to know more, you'll find it very useful to know what risks this stock faces. To that end, you should learn about the 3 warning signs we've spotted with Apollo Food Holdings Berhad (including 1 which is concerning).

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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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