Telekom Malaysia Berhad (KLSE:TM) Passed Our Checks, And It's About To Pay A RM00.05 Dividend

Telekom Malaysia Berhad (KLSE:TM) stock is about to trade ex-dividend in 4 days. Typically, the ex-dividend date is one business day 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Telekom Malaysia Berhad's shares on or after the 1st of April will not receive the dividend, which will be paid on the 19th 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 RM0.25 per share. Last year's total dividend payments show that Telekom Malaysia Berhad has a trailing yield of 4.2% on the current share price of RM06.01. If you buy this business for its dividend, you should have an idea of whether Telekom Malaysia Berhad's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Telekom Malaysia 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. Telekom Malaysia Berhad paid out 51% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Fortunately, it paid out only 44% of its free cash flow in the past year.

It's positive to see that Telekom Malaysia Berhad's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Telekom Malaysia Berhad's earnings have been skyrocketing, up 64% per annum for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. It looks like the Telekom Malaysia Berhad dividends are largely the same as they were 10 years ago.

The Bottom Line

Has Telekom Malaysia Berhad got what it takes to maintain its dividend payments? Telekom Malaysia Berhad's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. There's a lot to like about Telekom Malaysia Berhad, and we would prioritise taking a closer look at it.

While it's tempting to invest in Telekom Malaysia Berhad for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 2 warning signs for Telekom Malaysia Berhad (of which 1 doesn't sit too well with us!) you should know about.

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.