Cape EMS Berhad (KLSE:CEB) Passed Our Checks, And It's About To Pay A RM00.0067 Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Cape EMS Berhad (KLSE:CEB) is about to trade ex-dividend in the next 3 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. Therefore, if you purchase Cape EMS Berhad's shares on or after the 26th of July, you won't be eligible to receive the dividend, when it is paid on the 15th of August.

The company's upcoming dividend is RM00.0067 a share, following on from the last 12 months, when the company distributed a total of RM0.011 per share to shareholders. Based on the last year's worth of payments, Cape EMS Berhad stock has a trailing yield of around 1.4% on the current share price of RM00.985. If you buy this business for its dividend, you should have an idea of whether Cape EMS Berhad's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Cape EMS 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. Cape EMS Berhad paid out a comfortable 34% of its profit last year. 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. Over the last year, it paid out more than three-quarters (87%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

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.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Cape EMS Berhad's earnings have been skyrocketing, up 31% per annum for the past five years.

We'd also point out that Cape EMS Berhad issued a meaningful number of new shares in the past year. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.

Given that Cape EMS Berhad has only been paying a dividend for a year, there's not much of a past history to draw insight from.

Final Takeaway

From a dividend perspective, should investors buy or avoid Cape EMS Berhad? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. There's a lot to like about Cape EMS Berhad, and we would prioritise taking a closer look at it.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Our analysis shows 1 warning sign for Cape EMS Berhad and you should be aware of it before buying any shares.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com