Should You Buy TASCO Berhad (KLSE:TASCO) For Its Upcoming Dividend?

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that TASCO Berhad (KLSE:TASCO) is about to go ex-dividend in just 3 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase TASCO Berhad's shares before the 15th of May to receive the dividend, which will be paid on the 30th of May.

The company's next dividend payment will be RM00.0125 per share, and in the last 12 months, the company paid a total of RM0.012 per share. Calculating the last year's worth of payments shows that TASCO Berhad has a trailing yield of 2.3% on the current share price of RM00.535. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately TASCO Berhad's payout ratio is modest, at just 38% of profit. A useful secondary check can be to evaluate whether TASCO Berhad generated enough free cash flow to afford its dividend. The good news is it paid out just 16% of its free cash flow in the last year.

It's positive to see that TASCO 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.

Check out our latest analysis for TASCO Berhad

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see TASCO Berhad's earnings have been skyrocketing, up 24% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. TASCO Berhad's dividend payments are broadly unchanged compared to where they were 10 years ago.

To Sum It Up

Is TASCO Berhad worth buying for its dividend? TASCO Berhad has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. There's a lot to like about TASCO Berhad, and we would prioritise taking a closer look at it.

In light of that, while TASCO Berhad has an appealing dividend, it's worth knowing the risks involved with this stock. Every company has risks, and we've spotted 3 warning signs for TASCO Berhad you should know about.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.