Dividend Investors: Don't Be Too Quick To Buy PBA Holdings Bhd (KLSE:PBA) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see PBA Holdings Bhd (KLSE:PBA) is about to trade ex-dividend in the next four days. This means that investors who purchase shares on or after the 17th of December will not receive the dividend, which will be paid on the 15th of January.

PBA Holdings Bhd's next dividend payment will be RM0.013 per share. Last year, in total, the company distributed RM0.035 to shareholders. Based on the last year's worth of payments, PBA Holdings Bhd has a trailing yield of 2.8% on the current stock price of MYR0.89. If you buy this business for its dividend, you should have an idea of whether PBA Holdings Bhd's dividend is reliable and sustainable. So we need to investigate whether PBA Holdings Bhd can afford its dividend, and if the dividend could grow.

View our latest analysis for PBA Holdings Bhd

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 87% 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. A useful secondary check can be to evaluate whether PBA Holdings Bhd generated enough free cash flow to afford its dividend. Fortunately, it paid out only 48% of its free cash flow in the past year.

It's positive to see that PBA Holdings Bhd'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.

Click here to see how much of its profit PBA Holdings Bhd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. PBA Holdings Bhd's earnings per share have fallen at approximately 14% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. PBA Holdings Bhd has seen its dividend decline 1.8% per annum on average over the past 10 years, which is not great to see.

To Sum It Up

Should investors buy PBA Holdings Bhd for the upcoming dividend? We're not enthused by the declining earnings per share, although at least the company's payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. In summary, it's hard to get excited about PBA Holdings Bhd from a dividend perspective.

If you want to look further into PBA Holdings Bhd, it's worth knowing the risks this business faces. Be aware that PBA Holdings Bhd is showing 3 warning signs in our investment analysis, and 1 of those is a bit unpleasant...

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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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.
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