Yahoo Finance Here's Why We're Wary Of Buying Heineken Malaysia Berhad's (KLSE:HEIM) For Its Upcoming Dividend
It looks like Heineken Malaysia Berhad (KLSE:HEIM) is about to go ex-dividend in the next three days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order 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. This means that investors who purchase Heineken Malaysia Berhad's shares on or after the 27th of June will not receive the dividend, which will be paid on the 25th of July.
The company's next dividend payment will be RM00.88 per share, on the back of last year when the company paid a total of RM1.28 to shareholders. Calculating the last year's worth of payments shows that Heineken Malaysia Berhad has a trailing yield of 5.5% on the current share price of RM023.18. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Heineken Malaysia Berhad can afford its dividend, and if the dividend could grow.
View our latest analysis for Heineken Malaysia Berhad
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Last year Heineken Malaysia Berhad paid out 97% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. A useful secondary check can be to evaluate whether Heineken Malaysia Berhad generated enough free cash flow to afford its dividend. Over the last year, it paid out dividends equivalent to 238% of what it generated in free cash flow, a disturbingly high percentage. It's pretty hard to pay out more than you earn, so we wonder how Heineken Malaysia Berhad intends to continue funding this dividend, or if it could be forced to cut the payment.
Cash is slightly more important than profit from a dividend perspective, but given Heineken Malaysia Berhad's payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Heineken Malaysia Berhad earnings per share are up 7.2% per annum over the last five years. Earnings per share have been growing steadily, although a payout ratio this high suggests future growth is likely to slow, and the dividend may also be at risk of a cut if business enters a downturn.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Heineken Malaysia Berhad has increased its dividend at approximately 6.5% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
To Sum It Up
Should investors buy Heineken Malaysia Berhad for the upcoming dividend? The dividends are not well covered by either income or free cash flow, although at least earnings per share are slowly increasing. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.
So if you're still interested in Heineken Malaysia Berhad despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example, we've found 2 warning signs for Heineken Malaysia Berhad that we recommend you consider before investing in the business.
If you're in the market for strong dividend payers, we recommend checking our selection of top 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
