Don't Race Out To Buy Celcomdigi Berhad (KLSE:CDB) Just Because It's Going Ex-Dividend

Celcomdigi Berhad (KLSE:CDB) is about to trade ex-dividend in the next 3 days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Therefore, if you purchase Celcomdigi Berhad's shares on or after the 14th of March, you won't be eligible to receive the dividend, when it is paid on the 27th of March.

The company's upcoming dividend is RM00.037 a share, following on from the last 12 months, when the company distributed a total of RM0.14 per share to shareholders. Looking at the last 12 months of distributions, Celcomdigi Berhad has a trailing yield of approximately 4.2% on its current stock price of RM03.56. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Celcomdigi 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. Celcomdigi Berhad paid out 122% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. A useful secondary check can be to evaluate whether Celcomdigi Berhad generated enough free cash flow to afford its dividend. It paid out 108% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

As Celcomdigi Berhad's dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're discomforted by Celcomdigi Berhad's 8.6% per annum decline in earnings in the past 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. Celcomdigi Berhad has seen its dividend decline 3.6% 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.

Final Takeaway

From a dividend perspective, should investors buy or avoid Celcomdigi Berhad? It's looking like an unattractive opportunity, with its earnings per share declining, while, paying out an uncomfortably high percentage of both its profits (122%) and cash flow as dividends. This is a clearly suboptimal combination that usually suggests the dividend is at risk of being cut. If not now, then perhaps in the future. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Celcomdigi Berhad.

So if you're still interested in Celcomdigi Berhad despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. To help with this, we've discovered 2 warning signs for Celcomdigi Berhad (1 is a bit unpleasant!) that you ought to be aware of before buying the 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.