Do These 3 Checks Before Buying Inari Amertron Berhad (KLSE:INARI) For Its Upcoming Dividend

Inari Amertron Berhad (KLSE:INARI) is about to trade ex-dividend in the next four days. 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 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. This means that investors who purchase Inari Amertron Berhad's shares on or after the 11th of December will not receive the dividend, which will be paid on the 26th of December.

The company's next dividend payment will be RM00.01 per share. Last year, in total, the company distributed RM0.077 to shareholders. Based on the last year's worth of payments, Inari Amertron Berhad stock has a trailing yield of around 2.6% on the current share price of RM02.95. If you buy this business for its dividend, you should have an idea of whether Inari Amertron 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 Inari Amertron Berhad

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Inari Amertron Berhad paid out 102% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. 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. The company paid out 93% of its free cash flow over the last year, which we think is outside the ideal range 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.

Cash is slightly more important than profit from a dividend perspective, but given Inari Amertron Berhad's payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.

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

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're not enthused to see that Inari Amertron Berhad's earnings per share have remained effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. Minimal earnings growth, combined with concerningly high payout ratios suggests that Inari Amertron Berhad is unlikely to grow the dividend much in future, and indeed the payment could be vulnerable to a cut.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Inari Amertron Berhad has delivered an average of 19% per year annual increase in its dividend, based on the past 10 years of dividend payments.

To Sum It Up

Is Inari Amertron Berhad an attractive dividend stock, or better left on the shelf? Inari Amertron Berhad is paying out an uncomfortably high percentage of both earnings and cash flow as dividends, at the same time as its earnings per share are struggling to grow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

With that being said, if you're still considering Inari Amertron Berhad as an investment, you'll find it beneficial to know what risks this stock is facing. To help with this, we've discovered 1 warning sign for Inari Amertron Berhad that you should be aware of before investing in their shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.