VSTECS Berhad (KLSE:VSTECS) Will Pay A RM00.049 Dividend In Four Days

VSTECS Berhad (KLSE:VSTECS) stock is about to trade ex-dividend in four 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. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase VSTECS Berhad's shares on or after the 21st of April will not receive the dividend, which will be paid on the 13th of May.

The company's next dividend payment will be RM00.049 per share. Last year, in total, the company distributed RM0.069 to shareholders. Looking at the last 12 months of distributions, VSTECS Berhad has a trailing yield of approximately 2.6% on its current stock price of RM02.69. 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 investigate whether VSTECS Berhad can afford its dividend, and if the dividend could grow.

We've discovered 1 warning sign about VSTECS Berhad. View them for free.

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. Fortunately VSTECS Berhad's payout ratio is modest, at just 35% of profit. A useful secondary check can be to evaluate whether VSTECS Berhad generated enough free cash flow to afford its dividend. Over the last year, it paid out dividends equivalent to 254% of what it generated in free cash flow, a disturbingly high percentage. It's pretty hard to pay out more than you earn, so we wonder how VSTECS Berhad intends to continue funding this dividend, or if it could be forced to cut the payment.

VSTECS Berhad does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

While VSTECS 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. Were this to happen repeatedly, this would be a risk to VSTECS Berhad's ability to maintain its dividend.

See our latest analysis for VSTECS Berhad

Click here to see how much of its profit VSTECS 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, VSTECS Berhad's earnings per share have been growing at 19% 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.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. VSTECS Berhad has delivered an average of 9.6% per year annual increase in its dividend, based on the past 10 years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Is VSTECS Berhad an attractive dividend stock, or better left on the shelf? 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. Overall, it's hard to get excited about VSTECS Berhad from a dividend perspective.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example, we've found 1 warning sign for VSTECS Berhad that we recommend you consider before investing in the business.

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.