Read This Before Considering IRIS Corporation Berhad (KLSE:IRIS) For Its Upcoming RM00.005 Dividend

IRIS Corporation Berhad (KLSE:IRIS) is about to trade ex-dividend in the next 3 days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase IRIS Corporation Berhad's shares before the 9th of October in order to be eligible for the dividend, which will be paid on the 24th of October.

The company's next dividend payment will be RM00.005 per share, on the back of last year when the company paid a total of RM0.025 to shareholders. Looking at the last 12 months of distributions, IRIS Corporation Berhad has a trailing yield of approximately 9.4% on its current stock price of RM00.265. If you buy this business for its dividend, you should have an idea of whether IRIS Corporation Berhad's dividend is reliable and sustainable. So we need to investigate whether IRIS Corporation Berhad can afford its dividend, and if the dividend could grow.

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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. IRIS Corporation Berhad distributed an unsustainably high 124% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. 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. Dividends consumed 74% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's good to see that while IRIS Corporation Berhad's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.

See our latest analysis for IRIS Corporation Berhad

Click here to see how much of its profit IRIS Corporation 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, IRIS Corporation Berhad's earnings per share have been growing at 13% a year for the past five years.

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

To Sum It Up

Has IRIS Corporation Berhad got what it takes to maintain its dividend payments? Growing earnings per share and a normal cashflow payout ratio is an ok combination, but we're concerned that the company is paying out such a high percentage of its income as dividends. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

So if you want to do more digging on IRIS Corporation Berhad, you'll find it worthwhile knowing the risks that this stock faces. To help with this, we've discovered 2 warning signs for IRIS Corporation Berhad (1 can't be ignored!) that you ought to be aware of before buying the shares.

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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.