Is It Smart To Buy A-Rank Berhad (KLSE:ARANK) Before It Goes Ex-Dividend?

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that A-Rank Berhad (KLSE:ARANK) is about to go ex-dividend in just 4 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, A-Rank Berhad investors that purchase the stock on or after the 4th of December will not receive the dividend, which will be paid on the 18th of December.

The company's next dividend payment will be RM00.025 per share. Last year, in total, the company distributed RM0.025 to shareholders. Based on the last year's worth of payments, A-Rank Berhad stock has a trailing yield of around 4.8% on the current share price of RM00.525. 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 A-Rank Berhad can afford its dividend, and if the dividend could grow.

View our latest analysis for A-Rank 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. Fortunately A-Rank Berhad's payout ratio is modest, at just 29% of profit. A useful secondary check can be to evaluate whether A-Rank Berhad generated enough free cash flow to afford its dividend. The good news is it paid out just 14% of its free cash flow in the 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 A-Rank Berhad paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at A-Rank Berhad, with earnings per share up 5.5% on average over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

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, A-Rank Berhad has lifted its dividend by approximately 4.5% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Is A-Rank Berhad worth buying for its dividend? Earnings per share have been growing moderately, and A-Rank 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. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and A-Rank Berhad is halfway there. There's a lot to like about A-Rank Berhad, and we would prioritise taking a closer look at it.

While it's tempting to invest in A-Rank Berhad for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 2 warning signs for A-Rank Berhad you should be aware of.

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.