Here's What We Like About Amway (Malaysia) Holdings Berhad's (KLSE:AMWAY) Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Amway (Malaysia) Holdings Berhad (KLSE:AMWAY) is about to trade ex-dividend in the next three days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase Amway (Malaysia) Holdings Berhad's shares before the 8th of September in order to receive the dividend, which the company will pay on the 22nd of September.

The company's next dividend payment will be RM0.05 per share, on the back of last year when the company paid a total of RM0.38 to shareholders. Last year's total dividend payments show that Amway (Malaysia) Holdings Berhad has a trailing yield of 7.1% on the current share price of MYR5.36. If you buy this business for its dividend, you should have an idea of whether Amway (Malaysia) Holdings Berhad's dividend is reliable and sustainable. So we need to investigate whether Amway (Malaysia) Holdings Berhad can afford its dividend, and if the dividend could grow.

See our latest analysis for Amway (Malaysia) Holdings Berhad

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Amway (Malaysia) Holdings Berhad's payout ratio is modest, at just 42% of profit. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Fortunately, it paid out only 28% of its free cash flow in the past year.

It's positive to see that Amway (Malaysia) Holdings 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?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Amway (Malaysia) Holdings Berhad earnings per share are up 8.5% per annum over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Amway (Malaysia) Holdings Berhad has seen its dividend decline 5.9% per annum on average over the past 10 years, which is not great to see. Amway (Malaysia) Holdings Berhad is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

The Bottom Line

From a dividend perspective, should investors buy or avoid Amway (Malaysia) Holdings Berhad? Earnings per share growth has been growing somewhat, and Amway (Malaysia) Holdings 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. It might be nice to see earnings growing faster, but Amway (Malaysia) Holdings Berhad is being conservative with its dividend payouts and could still perform reasonably over the long run. Amway (Malaysia) Holdings Berhad looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Amway (Malaysia) Holdings 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 Amway (Malaysia) Holdings Berhad that you should be aware of before investing in their shares.

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.