Is It Smart To Buy GuocoLand (Malaysia) Berhad (KLSE:GUOCO) Before It Goes Ex-Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see GuocoLand (Malaysia) Berhad (KLSE:GUOCO) is about to trade ex-dividend in the next four days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Therefore, if you purchase GuocoLand (Malaysia) Berhad's shares on or after the 22nd of October, you won't be eligible to receive the dividend, when it is paid on the 12th of November.

The company's next dividend payment will be RM00.02 per share, on the back of last year when the company paid a total of RM0.02 to shareholders. Calculating the last year's worth of payments shows that GuocoLand (Malaysia) Berhad has a trailing yield of 3.2% on the current share price of RM00.63. 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.

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Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. GuocoLand (Malaysia) Berhad is paying out an acceptable 72% of its profit, a common payout level among most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. The good news is it paid out just 7.0% 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.

View our latest analysis for GuocoLand (Malaysia) Berhad

Click here to see how much of its profit GuocoLand (Malaysia) Berhad paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see GuocoLand (Malaysia) Berhad's earnings have been skyrocketing, up 22% per annum for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. GuocoLand (Malaysia) Berhad's dividend payments are broadly unchanged compared to where they were 10 years ago.

To Sum It Up

From a dividend perspective, should investors buy or avoid GuocoLand (Malaysia) Berhad? We like GuocoLand (Malaysia) Berhad's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. Overall we think this is an attractive combination and worthy of further research.

While it's tempting to invest in GuocoLand (Malaysia) Berhad for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 3 warning signs for GuocoLand (Malaysia) 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.