Don't Buy Celcomdigi Berhad (KLSE:CDB) For Its Next Dividend Without Doing These Checks

Readers hoping to buy Celcomdigi Berhad (KLSE:CDB) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Celcomdigi Berhad's shares on or after the 13th of June, you won't be eligible to receive the dividend, when it is paid on the 28th of June.

The company's upcoming dividend is RM00.035 a share, following on from the last 12 months, when the company distributed a total of RM0.13 per share to shareholders. Last year's total dividend payments show that Celcomdigi Berhad has a trailing yield of 3.5% on the current share price of RM03.81. If you buy this business for its dividend, you should have an idea of whether Celcomdigi Berhad's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Celcomdigi 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. Last year, Celcomdigi Berhad paid out 98% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. 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 55% of its free cash flow as dividends, within the usual range for most companies.

It's good to see that while Celcomdigi Berhad's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if this were to happen repeatedly, we'd be concerned about whether the dividend is sustainable in a downturn.

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

historic-dividend

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Celcomdigi Berhad's earnings per share have fallen at approximately 7.1% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Celcomdigi Berhad has seen its dividend decline 4.7% per annum on average over the past 10 years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

Final Takeaway

Is Celcomdigi Berhad worth buying for its dividend? Earnings per share have been shrinking in recent times. Additionally, Celcomdigi Berhad is paying out quite a high percentage of its earnings, and more than half its cash flow, so it's hard to evaluate whether the company is reinvesting enough in its business to improve its situation. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

With that being said, if you're still considering Celcomdigi Berhad as an investment, you'll find it beneficial to know what risks this stock is facing. For example - Celcomdigi Berhad has 2 warning signs we think you should be aware of.

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.