Read This Before Considering FM Global Logistics Holdings Berhad (KLSE:FM) For Its Upcoming RM00.02 Dividend

FM Global Logistics Holdings Berhad (KLSE:FM) stock is about to trade ex-dividend in four days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled 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. In other words, investors can purchase FM Global Logistics Holdings Berhad's shares before the 10th of September in order to be eligible for the dividend, which will be paid on the 26th of September.

The company's upcoming dividend is RM00.02 a share, following on from the last 12 months, when the company distributed a total of RM0.055 per share to shareholders. Last year's total dividend payments show that FM Global Logistics Holdings Berhad has a trailing yield of 7.6% on the current share price of RM00.59. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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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. Its dividend payout ratio is 81% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be worried about the risk of a drop in earnings. A useful secondary check can be to evaluate whether FM Global Logistics Holdings Berhad generated enough free cash flow to afford its dividend. It paid out more than half (52%) of its free cash flow in the past year, which is within an average range for most companies.

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 FM Global Logistics Holdings 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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see FM Global Logistics Holdings Berhad has grown its earnings rapidly, up 21% a year for the past five years. Earnings per share are growing at a rapid rate, yet the company is paying out more than three-quarters of its earnings.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, FM Global Logistics Holdings Berhad has increased its dividend at approximately 10% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

The Bottom Line

Has FM Global Logistics Holdings Berhad got what it takes to maintain its dividend payments? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. However, we'd also note that FM Global Logistics Holdings Berhad is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. Overall, it's hard to get excited about FM Global Logistics Holdings Berhad from a dividend perspective.

While it's tempting to invest in FM Global Logistics Holdings Berhad for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 2 warning signs for FM Global Logistics Holdings Berhad you should be aware of.

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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.