Readers hoping to buy Chin Teck Plantations Berhad (KLSE:CHINTEK) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 21st of January to receive the dividend, which will be paid on the 5th of February.
Chin Teck Plantations Berhad's upcoming dividend is RM0.11 a share, following on from the last 12 months, when the company distributed a total of RM0.18 per share to shareholders. Based on the last year's worth of payments, Chin Teck Plantations Berhad stock has a trailing yield of around 2.3% on the current share price of MYR6.9. 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.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Chin Teck Plantations Berhad paid out a comfortable 41% of its profit last year. 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. Thankfully its dividend payments took up just 50% of the free cash flow it generated, which is a comfortable payout ratio.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Chin Teck Plantations Berhad earnings per share are up 3.4% per annum over the last five years. 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.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Chin Teck Plantations Berhad has seen its dividend decline 6.1% per annum on average over the past 10 years, which is not great to see. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.
The Bottom Line
Is Chin Teck Plantations Berhad an attractive dividend stock, or better left on the shelf? Earnings per share have been growing moderately, and Chin Teck Plantations Berhad is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but Chin Teck Plantations Berhad is being conservative with its dividend payouts and could still perform reasonably over the long run. Chin Teck Plantations Berhad looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Every company has risks, and we've spotted 1 warning sign for Chin Teck Plantations Berhad you should know about.
If you're in the market for dividend stocks, we recommend checking our list of top 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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