Interested In PETRONAS Gas Berhad's (KLSE:PETGAS) Upcoming RM00.18 Dividend? You Have Four Days Left

Readers hoping to buy PETRONAS Gas Berhad (KLSE:PETGAS) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. Therefore, if you purchase PETRONAS Gas Berhad's shares on or after the 11th of December, you won't be eligible to receive the dividend, when it is paid on the 24th of December.

The company's upcoming dividend is RM00.18 a share, following on from the last 12 months, when the company distributed a total of RM0.72 per share to shareholders. Calculating the last year's worth of payments shows that PETRONAS Gas Berhad has a trailing yield of 4.0% on the current share price of RM017.86. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for PETRONAS Gas Berhad

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. It paid out 77% 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 worried about the risk of a drop in earnings. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year, it paid out more than three-quarters (77%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's positive to see that PETRONAS Gas 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.

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

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're not enthused to see that PETRONAS Gas Berhad's earnings per share have remained effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. A payout ratio of 77% looks like a tacit signal from management that reinvestment opportunities in the business are low. In line with limited earnings growth in recent years, this is not the most appealing combination.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. PETRONAS Gas Berhad has delivered 2.7% dividend growth per year on average over the past 10 years.

Final Takeaway

Should investors buy PETRONAS Gas Berhad for the upcoming dividend? Earnings per share have barely grown, and although PETRONAS Gas Berhad paid out over half its earnings and free cash flow last year, the payout ratios are within a normal range for most companies. In summary, while it has some positive characteristics, we're not inclined to race out and buy PETRONAS Gas Berhad today.

If you want to look further into PETRONAS Gas Berhad, it's worth knowing the risks this business faces. For example, we've found 1 warning sign for PETRONAS Gas Berhad that we recommend you consider before investing in the business.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.