Should Income Investors Look At LBI Capital Berhad (KLSE:LBICAP) Before Its Ex-Dividend?

It looks like LBI Capital Berhad (KLSE:LBICAP) is about to go ex-dividend in the next three days. The ex-dividend date is usually set to be one business day 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase LBI Capital Berhad's shares before the 7th of December to receive the dividend, which will be paid on the 22nd of December.

The company's next dividend payment will be RM0.02 per share. Last year, in total, the company distributed RM0.02 to shareholders. Last year's total dividend payments show that LBI Capital Berhad has a trailing yield of 3.9% on the current share price of MYR0.51. If you buy this business for its dividend, you should have an idea of whether LBI Capital Berhad's dividend is reliable and sustainable. So we need to investigate whether LBI Capital Berhad can afford its dividend, and if the dividend could grow.

See our latest analysis for LBI Capital 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. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Fortunately, it paid out only 50% of its free cash flow in the past year.

Click here to see how much of its profit LBI Capital Berhad paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. LBI Capital Berhad was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. LBI Capital Berhad has seen its dividend decline 7.1% per annum on average over the past 10 years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

We update our analysis on LBI Capital Berhad every 24 hours, so you can always get the latest insights on its financial health, here.

The Bottom Line

From a dividend perspective, should investors buy or avoid LBI Capital Berhad? It's hard to get used to LBI Capital Berhad paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. In summary, it's hard to get excited about LBI Capital Berhad from a dividend perspective.

While it's tempting to invest in LBI Capital Berhad for the dividends alone, you should always be mindful of the risks involved. We've identified 5 warning signs with LBI Capital Berhad (at least 1 which is a bit concerning), and understanding these should be part of your investment process.

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.