We Wouldn't Be Too Quick To Buy Fraser & Neave Holdings Bhd (KLSE:F&N) Before It Goes Ex-Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Fraser & Neave Holdings Bhd (KLSE:F&N) is about to trade ex-dividend in the next 4 days. You can purchase shares before the 20th of January in order to receive the dividend, which the company will pay on the 5th of February.

Fraser & Neave Holdings Bhd's next dividend payment will be RM0.33 per share, on the back of last year when the company paid a total of RM0.60 to shareholders. Looking at the last 12 months of distributions, Fraser & Neave Holdings Bhd has a trailing yield of approximately 1.9% on its current stock price of MYR31.6. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Fraser & Neave Holdings Bhd

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. Fraser & Neave Holdings Bhd paid out more than half (54%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Fraser & Neave Holdings Bhd generated enough free cash flow to afford its dividend. It paid out 102% 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 look more closely here.

While Fraser & Neave Holdings Bhd's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Fraser & Neave Holdings Bhd'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?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Fraser & Neave Holdings Bhd earnings per share are up 7.9% per annum over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Fraser & Neave Holdings Bhd has lifted its dividend by approximately 1.8% a year on average.

Final Takeaway

Has Fraser & Neave Holdings Bhd got what it takes to maintain its dividend payments? Earnings per share have grown somewhat, although Fraser & Neave Holdings Bhd paid out over half its profits and the dividend was not well covered by free cash flow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

Although, if you're still interested in Fraser & Neave Holdings Bhd and want to know more, you'll find it very useful to know what risks this stock faces. Every company has risks, and we've spotted 1 warning sign for Fraser & Neave Holdings Bhd you should know about.

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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