Why You Might Be Interested In Dominant Enterprise Berhad (KLSE:DOMINAN) For Its Upcoming Dividend

It looks like Dominant Enterprise Berhad (KLSE:DOMINAN) is about to go ex-dividend in the next 4 days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Dominant Enterprise Berhad's shares before the 12th of March to receive the dividend, which will be paid on the 28th of March.

The company's next dividend payment will be RM00.01 per share, and in the last 12 months, the company paid a total of RM0.04 per share. Last year's total dividend payments show that Dominant Enterprise Berhad has a trailing yield of 4.8% on the current share price of RM00.83. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Dominant Enterprise Berhad can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Dominant Enterprise Berhad

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Dominant Enterprise Berhad paid out just 23% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 17% of its free cash flow as dividends last year, which is conservatively low.

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 Dominant Enterprise Berhad paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're not enthused to see that Dominant Enterprise Berhad's earnings per share have remained effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. Growth has been anaemic. Yet with more than 75% of its earnings being kept in the business, there is ample room to reinvest in growth or lift the payout ratio - either of which could increase the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Dominant Enterprise Berhad has increased its dividend at approximately 1.9% a year on average.

Final Takeaway

From a dividend perspective, should investors buy or avoid Dominant Enterprise Berhad? Earnings per share have been flat over this time, but we're intrigued to see that Dominant Enterprise Berhad is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine strong earnings per share growth with a low payout ratio, and Dominant Enterprise Berhad is halfway there. There's a lot to like about Dominant Enterprise Berhad, and we would prioritise taking a closer look at it.

While it's tempting to invest in Dominant Enterprise Berhad for the dividends alone, you should always be mindful of the risks involved. For example - Dominant Enterprise Berhad has 2 warning signs we think you should be aware of.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.