Gas Malaysia Berhad (KLSE:GASMSIA) Will Pay A RM00.096 Dividend In Four Days

Readers hoping to buy Gas Malaysia Berhad (KLSE:GASMSIA) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Therefore, if you purchase Gas Malaysia Berhad's shares on or after the 4th of April, you won't be eligible to receive the dividend, when it is paid on the 25th of April.

The company's upcoming dividend is RM00.096 a share, following on from the last 12 months, when the company distributed a total of RM0.15 per share to shareholders. Based on the last year's worth of payments, Gas Malaysia Berhad stock has a trailing yield of around 3.5% on the current share price of RM04.31. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's 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. That's why it's good to see Gas Malaysia Berhad paying out a modest 44% of its earnings. A useful secondary check can be to evaluate whether Gas Malaysia Berhad generated enough free cash flow to afford its dividend. Gas Malaysia Berhad paid out more free cash flow than it generated - 111%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

Gas Malaysia Berhad paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Gas Malaysia Berhad's ability to maintain its dividend.

See our latest analysis for Gas 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. Fortunately for readers, Gas Malaysia Berhad's earnings per share have been growing at 18% a year for the past 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.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Gas Malaysia Berhad has delivered 1.1% dividend growth per year on average over the past 10 years. 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.

To Sum It Up

Has Gas Malaysia Berhad got what it takes to maintain its dividend payments? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. All things considered, we are not particularly enthused about Gas Malaysia Berhad from a dividend perspective.

While it's tempting to invest in Gas Malaysia Berhad for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 2 warning signs for Gas Malaysia Berhad (of which 1 doesn't sit too well with us!) 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.