N2N Connect Berhad (KLSE:N2N) Could Be A Buy For Its Upcoming Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that N2N Connect Berhad (KLSE:N2N) is about to go ex-dividend in just 3 days. Ex-dividend means that investors that purchase the stock on or after the 11th of December will not receive this dividend, which will be paid on the 28th of December.

The upcoming dividend for N2N Connect Berhad will put a total of RM0.015 per share in shareholders' pockets, up from last year's total dividends of RM0.01. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for N2N Connect 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. N2N Connect Berhad paid out 65% of its earnings to investors last year, a normal payout level for most businesses. 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. It distributed 27% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that N2N Connect Berhad'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 N2N Connect Berhad paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, N2N Connect Berhad's earnings per share have been growing at 15% a year for the past five years. N2N Connect Berhad is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. N2N Connect Berhad's dividend payments are broadly unchanged compared to where they were seven years ago.

To Sum It Up

From a dividend perspective, should investors buy or avoid N2N Connect Berhad? We like N2N Connect Berhad's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. It's a promising combination that should mark this company worthy of closer attention.

So while N2N Connect Berhad looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example - N2N Connect Berhad has 1 warning sign we think you should be aware of.

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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