Dividend Investors: Don't Be Too Quick To Buy Nova Wellness Group Berhad (KLSE:NOVA) For Its Upcoming Dividend

Nova Wellness Group Berhad (KLSE:NOVA) is about to trade ex-dividend in the next 3 days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase Nova Wellness Group Berhad's shares before the 18th of September in order to be eligible for the dividend, which will be paid on the 29th of September.

The company's next dividend payment will be RM00.016 per share. Last year, in total, the company distributed RM0.016 to shareholders. Last year's total dividend payments show that Nova Wellness Group Berhad has a trailing yield of 4.8% on the current share price of RM00.335. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Nova Wellness Group Berhad is paying out an acceptable 66% of its profit, a common payout level among most companies. 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 an unsustainably high 268% of its free cash flow as dividends over the past 12 months, which is worrying. It's pretty hard to pay out more than you earn, so we wonder how Nova Wellness Group Berhad intends to continue funding this dividend, or if it could be forced to cut the payment.

While Nova Wellness Group Berhad'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 Nova Wellness Group Berhad's ability to maintain its dividend.

See our latest analysis for Nova Wellness Group Berhad

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see Nova Wellness Group Berhad's earnings per share have dropped 9.9% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Nova Wellness Group Berhad's dividend payments per share have declined at 1.7% per year on average over the past seven years, which is uninspiring.

To Sum It Up

Should investors buy Nova Wellness Group Berhad for the upcoming dividend? It's definitely not great to see earnings per share shrinking. The company paid out an acceptable percentage of its income, but an uncomfortably high percentage of its cash flow over the past year. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Nova Wellness Group Berhad. Our analysis shows 3 warning signs for Nova Wellness Group Berhad and you should be aware of them before buying any shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.