Gas Malaysia Berhad (KLSE:GASMSIA) Stock Goes Ex-Dividend In Just Three Days

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 Gas Malaysia Berhad (KLSE:GASMSIA) is about to go ex-dividend in just three days. Investors can purchase shares before the 12th of March in order to be eligible for this dividend, which will be paid on the 31st of March.

Gas Malaysia Berhad's next dividend payment will be RM0.054 per share, on the back of last year when the company paid a total of RM0.14 to shareholders. Calculating the last year's worth of payments shows that Gas Malaysia Berhad has a trailing yield of 5.2% on the current share price of MYR2.71. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Gas Malaysia Berhad

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 85% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be concerned if earnings began to decline. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 95% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.

While Gas Malaysia Berhad's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Gas Malaysia Berhad to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Gas Malaysia Berhad's earnings per share have risen 15% per annum over the last five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, nine years ago, Gas Malaysia Berhad has lifted its dividend by approximately 3.9% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Gas Malaysia Berhad is keeping back more of its profits to grow the business.

To Sum It Up

Is Gas Malaysia Berhad an attractive dividend stock, or better left on the shelf? It's good to see that earnings per share are growing and that the company's payout ratio is within a normal range for most businesses. However we're somewhat concerned that it paid out 95% of its cashflow, which is uncomfortably high. To summarise, Gas Malaysia Berhad looks okay on this analysis, although it doesn't appear a stand-out opportunity.

However if you're still interested in Gas Malaysia Berhad as a potential investment, you should definitely consider some of the risks involved with Gas Malaysia Berhad. For example - Gas Malaysia Berhad has 1 warning sign we think you should be aware of.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

If you’re looking to trade Gas Malaysia Berhad, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.