Is It Worth Considering Atlan Holdings Bhd (KLSE:ATLAN) For Its Upcoming Dividend?

Atlan Holdings Bhd (KLSE:ATLAN) is about to trade ex-dividend in the next four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Atlan Holdings Bhd's shares before the 28th of January to receive the dividend, which will be paid on the 17th of February.

The company's next dividend payment will be RM00.08 per share. Last year, in total, the company distributed RM0.13 to shareholders. Based on the last year's worth of payments, Atlan Holdings Bhd has a trailing yield of 4.7% on the current stock price of RM02.70. If you buy this business for its dividend, you should have an idea of whether Atlan Holdings Bhd's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Atlan Holdings Bhd

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Atlan Holdings Bhd paid out more than half (73%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Fortunately, it paid out only 29% of its free cash flow in the past year.

It's positive to see that Atlan Holdings Bhd'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 how much of its profit Atlan Holdings Bhd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Atlan Holdings Bhd, with earnings per share up 2.0% on average over the last five years. Earnings growth has been slim and the company is paying out more than half of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Atlan Holdings Bhd has seen its dividend decline 6.5% per annum on average over the past 10 years, which is not great to see. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

Final Takeaway

Is Atlan Holdings Bhd worth buying for its dividend? Earnings per share growth has been modest and Atlan Holdings Bhd paid out over half of its profits and less than half of its free cash flow, although both payout ratios are within normal limits. Overall, it's hard to get excited about Atlan Holdings Bhd from a dividend perspective.

So while Atlan Holdings Bhd looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example, Atlan Holdings Bhd has 2 warning signs (and 1 which is significant) we think you should know about.

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

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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.