Should You Buy TPC Plus Berhad (KLSE:TPC) For Its Upcoming Dividend?

TPC Plus Berhad (KLSE:TPC) 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase TPC Plus Berhad's shares on or after the 12th of December, you won't be eligible to receive the dividend, when it is paid on the 27th of December.

The company's next dividend payment will be RM00.01 per share, on the back of last year when the company paid a total of RM0.02 to shareholders. Based on the last year's worth of payments, TPC Plus Berhad stock has a trailing yield of around 5.3% on the current share price of RM00.38. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for TPC Plus 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. TPC Plus Berhad paid out just 16% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. It paid out 20% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that TPC Plus Berhad's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit TPC Plus Berhad paid out over the last 12 months.

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 earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see TPC Plus Berhad has grown its earnings rapidly, up 55% a year for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, TPC Plus Berhad looks like a promising growth company.

Unfortunately TPC Plus Berhad has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

To Sum It Up

Should investors buy TPC Plus Berhad for the upcoming dividend? TPC Plus Berhad has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. TPC Plus Berhad looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks TPC Plus Berhad is facing. Our analysis shows 2 warning signs for TPC Plus Berhad and you should be aware of these before buying any shares.

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.