Don't Buy Carlsberg Brewery Malaysia Berhad (KLSE:CARLSBG) For Its Next Dividend Without Doing These Checks

Readers hoping to buy Carlsberg Brewery Malaysia Berhad (KLSE:CARLSBG) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Carlsberg Brewery Malaysia Berhad's shares on or after the 25th of June, you won't be eligible to receive the dividend, when it is paid on the 11th of July.

The company's next dividend payment will be RM00.22 per share, on the back of last year when the company paid a total of RM0.93 to shareholders. Calculating the last year's worth of payments shows that Carlsberg Brewery Malaysia Berhad has a trailing yield of 4.9% on the current share price of RM019.04. 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 investigate whether Carlsberg Brewery Malaysia Berhad can afford its dividend, and if the dividend could grow.

See our latest analysis for Carlsberg Brewery Malaysia Berhad

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Its dividend payout ratio is 87% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. It could become a concern if earnings started to decline. A useful secondary check can be to evaluate whether Carlsberg Brewery Malaysia Berhad generated enough free cash flow to afford its dividend. It paid out 95% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

Carlsberg Brewery Malaysia Berhad paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Carlsberg Brewery Malaysia Berhad's ability to maintain its dividend.

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Carlsberg Brewery Malaysia Berhad, with earnings per share up 3.6% on average over the last five years. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Carlsberg Brewery Malaysia Berhad has increased its dividend at approximately 4.0% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Is Carlsberg Brewery Malaysia Berhad worth buying for its dividend? Earnings per share have grown somewhat, although Carlsberg Brewery Malaysia Berhad paid out over half its profits and the dividend was not well covered by free cash flow. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Carlsberg Brewery Malaysia Berhad.

With that in mind though, if the poor dividend characteristics of Carlsberg Brewery Malaysia Berhad don't faze you, it's worth being mindful of the risks involved with this business. To that end, you should learn about the 2 warning signs we've spotted with Carlsberg Brewery Malaysia Berhad (including 1 which is concerning).

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com