Here's Why We're Wary Of Buying Eng Kah Corporation Berhad's (KLSE:ENGKAH) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Eng Kah Corporation Berhad (KLSE:ENGKAH) is about to trade ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 12th of March will not receive this dividend, which will be paid on the 30th of March.

Eng Kah Corporation Berhad's next dividend payment will be RM0.035 per share. Last year, in total, the company distributed RM0.07 to shareholders. Based on the last year's worth of payments, Eng Kah Corporation Berhad stock has a trailing yield of around 3.6% on the current share price of MYR1.92. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Eng Kah Corporation Berhad can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Eng Kah Corporation Berhad

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year Eng Kah Corporation Berhad paid out 94% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings.

Click here to see how much of its profit Eng Kah Corporation Berhad paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's not ideal to see Eng Kah Corporation Berhad's earnings per share have been shrinking at 4.5% a year over the previous five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Eng Kah Corporation Berhad has seen its dividend decline 9.7% per annum on average over the past 10 years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

The Bottom Line

Has Eng Kah Corporation Berhad got what it takes to maintain its dividend payments? Not only are earnings per share shrinking, but Eng Kah Corporation Berhad is paying out a disconcertingly high percentage of its profit as dividends. Generally we think dividend investors should avoid businesses in this situation, as high payout ratios and declining earnings can lead to the dividend being cut. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.

Although, if you're still interested in Eng Kah Corporation Berhad and want to know more, you'll find it very useful to know what risks this stock faces. For example, Eng Kah Corporation Berhad has 4 warning signs (and 1 which shouldn't be ignored) we think 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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