DynaFront Holdings Berhad (KLSE:DYNAFNT) Passed Our Checks, And It's About To Pay A RM00.007 Dividend

DynaFront Holdings Berhad (KLSE:DYNAFNT) stock is about to trade ex-dividend in 4 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. 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. In other words, investors can purchase DynaFront Holdings Berhad's shares before the 27th of August in order to be eligible for the dividend, which will be paid on the 9th of September.

The company's upcoming dividend is RM00.007 a share, following on from the last 12 months, when the company distributed a total of RM0.012 per share to shareholders. Based on the last year's worth of payments, DynaFront Holdings Berhad stock has a trailing yield of around 1.2% on the current share price of RM01.00. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for DynaFront Holdings 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. Fortunately DynaFront Holdings Berhad's payout ratio is modest, at just 48% of profit. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. The company paid out 92% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.

While DynaFront Holdings Berhad's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were DynaFront Holdings 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 DynaFront Holdings Berhad paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, DynaFront Holdings Berhad's earnings per share have been growing at 11% a year for the past five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. DynaFront Holdings Berhad's dividend payments are effectively flat on where they were two years ago.

The Bottom Line

Is DynaFront Holdings Berhad worth buying for its dividend? 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. To summarise, DynaFront Holdings Berhad looks okay on this analysis, although it doesn't appear a stand-out opportunity.

On that note, you'll want to research what risks DynaFront Holdings Berhad is facing. We've identified 5 warning signs with DynaFront Holdings Berhad (at least 2 which are potentially serious), and understanding them should be part of your investment process.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.