Dividend Investors: Don't Be Too Quick To Buy Axiata Group Berhad (KLSE:AXIATA) For Its Upcoming Dividend

Axiata Group Berhad (KLSE:AXIATA) stock is about to trade ex-dividend in 4 days. This means that investors who purchase shares on or after the 24th of March will not receive the dividend, which will be paid on the 8th of April.

Axiata Group Berhad's next dividend payment will be RM0.05 per share, and in the last 12 months, the company paid a total of RM0.07 per share. Last year's total dividend payments show that Axiata Group Berhad has a trailing yield of 1.8% on the current share price of MYR3.85. 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! As a result, readers should always check whether Axiata Group Berhad has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Axiata Group 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. Axiata Group Berhad distributed an unsustainably high 176% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It distributed 30% of its free cash flow as dividends, a comfortable payout level for most companies.

It's good to see that while Axiata Group Berhad's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Axiata Group Berhad's earnings have collapsed faster than Wile E Coyote's schemes to trap the Road Runner; down a tremendous 33% a year over the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Axiata Group Berhad has seen its dividend decline 3.5% per annum on average over the past 10 years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

To Sum It Up

Is Axiata Group Berhad an attractive dividend stock, or better left on the shelf? It's never great to see earnings per share declining, especially when a company is paying out 176% of its profit as dividends, which we feel is uncomfortably high. However, the cash payout ratio was much lower - good news from a dividend perspective - which makes us wonder why there is such a mis-match between income and cashflow. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Axiata Group Berhad. Every company has risks, and we've spotted 3 warning signs for Axiata Group Berhad (of which 1 shouldn't be ignored!) you should know about.

If you're in the market for dividend stocks, we recommend checking our list of top 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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