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Don't Race Out To Buy Axiata Group Berhad (KLSE:AXIATA) Just Because It's Going Ex-Dividend
It looks like Axiata Group Berhad (KLSE:AXIATA) is about to go ex-dividend in the next three days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Axiata Group Berhad's shares on or after the 10th of April will not receive the dividend, which will be paid on the 30th of April.
The company's next dividend payment will be RM00.05 per share, and in the last 12 months, the company paid a total of RM0.10 per share. Based on the last year's worth of payments, Axiata Group Berhad stock has a trailing yield of around 5.5% on the current share price of RM01.82. If you buy this business for its dividend, you should have an idea of whether Axiata Group Berhad's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
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. Last year Axiata Group Berhad paid out 97% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. 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. Thankfully its dividend payments took up just 30% of the free cash flow it generated, which is a comfortable payout ratio.
It's good to see that while Axiata Group Berhad's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.
Check out our latest analysis for Axiata Group Berhad
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 fall far enough, the company could be forced to cut its dividend. Axiata Group Berhad's earnings per share have fallen at approximately 8.4% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Axiata Group Berhad has seen its dividend decline 7.6% 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
From a dividend perspective, should investors buy or avoid Axiata Group Berhad? It's never great to see earnings per share declining, especially when a company is paying out 97% of its profit as dividends, which we feel is uncomfortably high. Yet cashflow was much stronger, which makes us wonder if there are some large timing issues in Axiata Group Berhad's cash flows, or perhaps the company has written down some assets aggressively, reducing its income. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
So if you're still interested in Axiata Group Berhad despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example, we've found 2 warning signs for Axiata Group Berhad (1 is a bit unpleasant!) that deserve your attention before investing in the shares.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
About KLSE:AXIATA
Axiata Group Berhad
An investment holding company, provides telecommunications services.
Fair value second-rate dividend payer.
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