Don't Buy Bonia Corporation Berhad (KLSE:BONIA) For Its Next Dividend Without Doing These Checks

It looks like Bonia Corporation Berhad (KLSE:BONIA) is about to go ex-dividend in the next 4 days. Investors can purchase shares before the 23rd of March in order to be eligible for this dividend, which will be paid on the 6th of April.

Bonia Corporation Berhad's next dividend payment will be RM0.02 per share, and in the last 12 months, the company paid a total of RM0.04 per share. Based on the last year's worth of payments, Bonia Corporation Berhad has a trailing yield of 4.2% on the current stock price of MYR0.95. If you buy this business for its dividend, you should have an idea of whether Bonia Corporation Berhad's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Bonia Corporation Berhad

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. Last year, Bonia Corporation Berhad paid out 375% of its profit to shareholders in the form of dividends. This is not sustainable behaviour and requires a closer look on behalf of the purchaser. 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. Thankfully its dividend payments took up just 45% of the free cash flow it generated, which is a comfortable payout ratio.

It's good to see that while Bonia Corporation Berhad's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Bonia Corporation Berhad's earnings have collapsed faster than Wile E Coyote's schemes to trap the Road Runner; down a tremendous 41% a year over the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Bonia Corporation Berhad has seen its dividend decline 2.2% per annum on average over the past 10 years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

Final Takeaway

Has Bonia Corporation Berhad got what it takes to maintain its dividend payments? It's never great to see earnings per share declining, especially when a company is paying out 375% of its profit as dividends, which we feel is uncomfortably high. However, the cash payout ratio was much lower - good news from a dividend perspective - which makes us wonder why there is such a mis-match between income and cashflow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

So if you're still interested in Bonia Corporation Berhad despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. To help with this, we've discovered 5 warning signs for Bonia Corporation Berhad that you should be aware of before investing in their shares.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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