Daibochi Berhad (KLSE:DAIBOCI) Could Be A Buy For Its Upcoming Dividend

Daibochi Berhad (KLSE:DAIBOCI) is about to trade ex-dividend in the next 4 days. If you purchase the stock on or after the 30th of December, you won't be eligible to receive this dividend, when it is paid on the 15th of January.

Daibochi Berhad's next dividend payment will be RM0.03 per share. Last year, in total, the company distributed RM0.06 to shareholders. Last year's total dividend payments show that Daibochi Berhad has a trailing yield of 2.3% on the current share price of MYR2.63. If you buy this business for its dividend, you should have an idea of whether Daibochi Berhad's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Daibochi 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. That's why it's good to see Daibochi Berhad paying out a modest 33% of its earnings. A useful secondary check can be to evaluate whether Daibochi Berhad generated enough free cash flow to afford its dividend. It paid out 11% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Daibochi 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 the company's payout ratio, plus analyst estimates of its future dividends.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Daibochi Berhad's earnings per share have been growing at 15% a year for the past five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Daibochi Berhad has delivered an average of 5.3% per year annual increase in its dividend, based on the past 10 years of dividend payments. Earnings per share have been growing much quicker than dividends, potentially because Daibochi Berhad is keeping back more of its profits to grow the business.

To Sum It Up

Should investors buy Daibochi Berhad for the upcoming dividend? It's great that Daibochi Berhad is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. There's a lot to like about Daibochi Berhad, and we would prioritise taking a closer look at it.

While it's tempting to invest in Daibochi Berhad for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 1 warning sign for Daibochi Berhad that you should be aware of before investing in their shares.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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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