Why You Might Be Interested In Telekom Malaysia Berhad (KLSE:TM) For Its Upcoming Dividend

Telekom Malaysia Berhad (KLSE:TM) stock is about to trade ex-dividend in 4 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Telekom Malaysia Berhad's shares on or after the 17th of September, you won't be eligible to receive the dividend, when it is paid on the 30th of September.

The company's upcoming dividend is RM00.125 a share, following on from the last 12 months, when the company distributed a total of RM0.25 per share to shareholders. Calculating the last year's worth of payments shows that Telekom Malaysia Berhad has a trailing yield of 3.2% on the current share price of RM07.73. If you buy this business for its dividend, you should have an idea of whether Telekom Malaysia Berhad's dividend is reliable and sustainable. So we need to investigate whether Telekom Malaysia Berhad can afford its dividend, and if the dividend could grow.

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Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Telekom Malaysia Berhad paid out a comfortable 48% of its profit last year. 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. Dividends consumed 70% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

See our latest analysis for Telekom Malaysia Berhad

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Telekom Malaysia Berhad's earnings have been skyrocketing, up 25% per annum for the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Telekom Malaysia Berhad's dividend payments are broadly unchanged compared to where they were 10 years ago.

The Bottom Line

Has Telekom Malaysia Berhad got what it takes to maintain its dividend payments? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. Telekom Malaysia Berhad looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

In light of that, while Telekom Malaysia Berhad has an appealing dividend, it's worth knowing the risks involved with this stock. Every company has risks, and we've spotted 2 warning signs for Telekom Malaysia Berhad (of which 1 is significant!) you should know about.

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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.