Should Income Investors Look At See Hup Consolidated Berhad (KLSE:SEEHUP) Before Its Ex-Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see See Hup Consolidated Berhad (KLSE:SEEHUP) is about to trade ex-dividend in the next three 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 as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, See Hup Consolidated Berhad investors that purchase the stock on or after the 18th of October will not receive the dividend, which will be paid on the 8th of November.

The company's next dividend payment will be RM00.027 per share. Last year, in total, the company distributed RM0.054 to shareholders. Based on the last year's worth of payments, See Hup Consolidated Berhad has a trailing yield of 6.0% on the current stock price of RM00.90. 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! So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for See Hup Consolidated 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. See Hup Consolidated Berhad reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Thankfully its dividend payments took up just 44% of the free cash flow it generated, which is a comfortable payout ratio.

Click here to see how much of its profit See Hup Consolidated Berhad paid out over the last 12 months.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. See Hup Consolidated Berhad was unprofitable last year, but at least the general trend suggests its earnings have been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, nine years ago, See Hup Consolidated Berhad has lifted its dividend by approximately 2.0% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

Remember, you can always get a snapshot of See Hup Consolidated Berhad's financial health, by checking our visualisation of its financial health, here.

To Sum It Up

Has See Hup Consolidated Berhad got what it takes to maintain its dividend payments? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example, we've found 3 warning signs for See Hup Consolidated Berhad (1 shouldn't be ignored!) that deserve your attention before investing in 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.