Stock Analysis

Read This Before Considering Hai-O Enterprise Berhad (KLSE:HAIO) For Its Upcoming RM0.04 Dividend

KLSE:BESHOM
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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Hai-O Enterprise Berhad (KLSE:HAIO) is about to trade ex-dividend in the next four days. You will need to purchase shares before the 24th of February to receive the dividend, which will be paid on the 4th of March.

Hai-O Enterprise Berhad's next dividend payment will be RM0.04 per share, on the back of last year when the company paid a total of RM0.11 to shareholders. Calculating the last year's worth of payments shows that Hai-O Enterprise Berhad has a trailing yield of 5.0% on the current share price of MYR2.21. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Hai-O Enterprise 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. Its dividend payout ratio is 84% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be worried about the risk of a drop in earnings. 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. It paid out 83% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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

historic-dividend
KLSE:HAIO Historic Dividend February 19th 2021

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 earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Hai-O Enterprise Berhad earnings per share are up 5.3% per annum over the last five years. Decent historical earnings per share growth suggests Hai-O Enterprise Berhad has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Hai-O Enterprise Berhad's dividend payments per share have declined at 8.5% per year on average over the past 10 years, which is uninspiring. 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.

The Bottom Line

Is Hai-O Enterprise Berhad an attractive dividend stock, or better left on the shelf? Earnings per share have been growing modestly and Hai-O Enterprise Berhad paid out a bit over half of its earnings and free cash flow last year. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Hai-O Enterprise Berhad's dividend merits.

So if you want to do more digging on Hai-O Enterprise Berhad, you'll find it worthwhile knowing the risks that this stock faces. For example, we've found 1 warning sign for Hai-O Enterprise Berhad that we recommend you consider before investing in the business.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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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