Read This Before Considering Kim Loong Resources Berhad (KLSE:KMLOONG) For Its Upcoming RM0.03 Dividend

Readers hoping to buy Kim Loong Resources Berhad (KLSE:KMLOONG) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Investors can purchase shares before the 22nd of January in order to be eligible for this dividend, which will be paid on the 22nd of February.

Kim Loong Resources Berhad's upcoming dividend is RM0.03 a share, following on from the last 12 months, when the company distributed a total of RM0.08 per share to shareholders. Based on the last year's worth of payments, Kim Loong Resources Berhad stock has a trailing yield of around 5.1% on the current share price of MYR1.57. If you buy this business for its dividend, you should have an idea of whether Kim Loong Resources Berhad's dividend is reliable and sustainable. As a result, readers should always check whether Kim Loong Resources Berhad has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Kim Loong Resources 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. Kim Loong Resources Berhad paid out more than half (75%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It distributed 26% of its free cash flow as dividends, a comfortable payout level for most companies.

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.

Click here to see how much of its profit Kim Loong Resources Berhad paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. 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 Kim Loong Resources Berhad earnings per share are up 2.9% per annum over the last five years. Earnings growth has been slim and the company is paying out more than half of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Kim Loong Resources Berhad has increased its dividend at approximately 9.2% 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

From a dividend perspective, should investors buy or avoid Kim Loong Resources Berhad? While earnings per share growth has been modest, Kim Loong Resources Berhad's dividend payouts are around an average level; without a sharp change in earnings we feel that the dividend is likely somewhat sustainable. Pleasingly the company paid out a conservatively low percentage of its free cash flow. In summary, it's hard to get excited about Kim Loong Resources Berhad from a dividend perspective.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For instance, we've identified 2 warning signs for Kim Loong Resources Berhad (1 is significant) you should be aware of.

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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