Should You Buy Analabs Resources Berhad (KLSE:ANALABS) For Its Upcoming Dividend?

Analabs Resources Berhad (KLSE:ANALABS) stock is about to trade ex-dividend in 4 days. Ex-dividend means that investors that purchase the stock on or after the 24th of February will not receive this dividend, which will be paid on the 12th of March.

Analabs Resources Berhad's upcoming dividend is RM0.02 a share, following on from the last 12 months, when the company distributed a total of RM0.02 per share to shareholders. Looking at the last 12 months of distributions, Analabs Resources Berhad has a trailing yield of approximately 1.7% on its current stock price of MYR1.2. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Analabs Resources 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. Analabs Resources Berhad is paying out just 24% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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 paid out 13% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Analabs Resources 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 Analabs Resources 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Analabs Resources Berhad, with earnings per share up 6.3% on average over the last five years. Earnings per share have been increasing steadily and management is reinvesting almost all of the profits back into the business. This is an attractive combination, because when profits are reinvested effectively, growth can compound, with corresponding benefits for earnings and dividends in the future.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Analabs Resources Berhad's dividend payments per share have declined at 2.2% per year on average over the past 10 years, which is uninspiring. Analabs Resources Berhad is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

The Bottom Line

Is Analabs Resources Berhad worth buying for its dividend? Earnings per share have been growing moderately, and Analabs Resources Berhad is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but Analabs Resources Berhad is being conservative with its dividend payouts and could still perform reasonably over the long run. It's a promising combination that should mark this company worthy of closer attention.

On that note, you'll want to research what risks Analabs Resources Berhad is facing. Our analysis shows 3 warning signs for Analabs Resources Berhad that we strongly recommend you have a look at before investing in the company.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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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