Stock Analysis

Only One Day Left To Cash In On Asia Brands Berhad's (KLSE:ASIABRN) Dividend

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Readers hoping to buy Asia Brands Berhad (KLSE:ASIABRN) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, Asia Brands Berhad investors that purchase the stock on or after the 30th of May will not receive the dividend, which will be paid on the 15th of June.

The company's upcoming dividend is RM0.01 a share, following on from the last 12 months, when the company distributed a total of RM0.02 per share to shareholders. Looking at the last 12 months of distributions, Asia Brands Berhad has a trailing yield of approximately 3.7% on its current stock price of MYR0.54. If you buy this business for its dividend, you should have an idea of whether Asia Brands Berhad's dividend is reliable and sustainable. As a result, readers should always check whether Asia Brands Berhad has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Asia Brands Berhad

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Asia Brands Berhad paid out a comfortable 32% of its profit last year. A useful secondary check can be to evaluate whether Asia Brands Berhad generated enough free cash flow to afford its dividend. It paid out 100% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

Asia Brands Berhad paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Asia Brands Berhad to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

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

KLSE:ASIABRN Historic Dividend May 28th 2023

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Asia Brands Berhad has grown its earnings rapidly, up 59% a year for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Asia Brands Berhad has seen its dividend decline 8.8% per annum on average over the past 10 years, which is not great to see. Asia Brands 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.

Final Takeaway

From a dividend perspective, should investors buy or avoid Asia Brands Berhad? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. In summary, it's hard to get excited about Asia Brands Berhad from a dividend perspective.

On that note, you'll want to research what risks Asia Brands Berhad is facing. For example, we've found 2 warning signs for Asia Brands Berhad that we recommend you consider before investing in the business.

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

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