Stock Analysis

Don't Buy Ta Ann Holdings Berhad (KLSE:TAANN) For Its Next Dividend Without Doing These Checks

KLSE:TAANN
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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 Ta Ann Holdings Berhad (KLSE:TAANN) is about to go ex-dividend in just 4 days. If you purchase the stock on or after the 29th of December, you won't be eligible to receive this dividend, when it is paid on the 12th of January.

Ta Ann Holdings Berhad's next dividend payment will be RM0.10 per share. Last year, in total, the company distributed RM0.20 to shareholders. Based on the last year's worth of payments, Ta Ann Holdings Berhad stock has a trailing yield of around 6.5% on the current share price of MYR3.09. 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 Ta Ann Holdings Berhad can afford its dividend, and if the dividend could grow.

See our latest analysis for Ta Ann Holdings 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. Ta Ann Holdings Berhad is paying out an acceptable 54% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Ta Ann Holdings 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 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 the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
KLSE:TAANN Historic Dividend December 24th 2020

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Ta Ann Holdings Berhad's earnings per share have fallen at approximately 7.7% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Ta Ann Holdings Berhad has increased its dividend at approximately 21% a year on average. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.

The Bottom Line

From a dividend perspective, should investors buy or avoid Ta Ann Holdings Berhad? We're not enthused by the declining earnings per share, although at least the company's payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. In summary, it's hard to get excited about Ta Ann Holdings Berhad from a dividend perspective.

If you want to look further into Ta Ann Holdings Berhad, it's worth knowing the risks this business faces. For example, we've found 1 warning sign for Ta Ann Holdings Berhad that we recommend you consider before investing in the business.

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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