Why You Might Be Interested In Teo Seng Capital Berhad (KLSE:TEOSENG) For Its Upcoming Dividend

Teo Seng Capital Berhad (KLSE:TEOSENG) stock is about to trade ex-dividend in three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Teo Seng Capital Berhad's shares on or after the 13th of September will not receive the dividend, which will be paid on the 27th of September.

The company's next dividend payment will be RM00.03 per share. Last year, in total, the company distributed RM0.085 to shareholders. Last year's total dividend payments show that Teo Seng Capital Berhad has a trailing yield of 4.1% on the current share price of RM02.07. If you buy this business for its dividend, you should have an idea of whether Teo Seng Capital Berhad's dividend is reliable and sustainable. So we need to investigate whether Teo Seng Capital Berhad can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Teo Seng Capital Berhad

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. Teo Seng Capital Berhad has a low and conservative payout ratio of just 20% of its income after tax. A useful secondary check can be to evaluate whether Teo Seng Capital Berhad generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 15% of its cash flow last year.

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 Teo Seng Capital 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Teo Seng Capital Berhad's earnings have been skyrocketing, up 41% per annum for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Teo Seng Capital Berhad looks like a promising growth company.

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, Teo Seng Capital Berhad has lifted its dividend by approximately 20% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

Should investors buy Teo Seng Capital Berhad for the upcoming dividend? It's great that Teo Seng Capital Berhad is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Overall we think this is an attractive combination and worthy of further research.

In light of that, while Teo Seng Capital Berhad has an appealing dividend, it's worth knowing the risks involved with this stock. We've identified 2 warning signs with Teo Seng Capital Berhad (at least 1 which is concerning), and understanding these should be part of your investment process.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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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.