Yahoo Finance We Wouldn't Be Too Quick To Buy Jardine Matheson Holdings Limited (SGX:J36) Before It Goes Ex-Dividend
It looks like Jardine Matheson Holdings Limited (SGX:J36) is about to go ex-dividend in the next 3 days. The ex-dividend date is one business day 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 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. Accordingly, Jardine Matheson Holdings investors that purchase the stock on or after the 21st of March will not receive the dividend, which will be paid on the 15th of May.
The company's upcoming dividend is US$1.65 a share, following on from the last 12 months, when the company distributed a total of US$2.25 per share to shareholders. Based on the last year's worth of payments, Jardine Matheson Holdings stock has a trailing yield of around 5.7% on the current share price of US$39.79. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
Check out our latest analysis for Jardine Matheson Holdings
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, Jardine Matheson Holdings paid out 95% 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. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Luckily it paid out just 16% of its free cash flow last year.
It's good to see that while Jardine Matheson Holdings'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.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're discomforted by Jardine Matheson Holdings's 12% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Jardine Matheson Holdings has lifted its dividend by approximately 5.2% a year on average. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Jardine Matheson Holdings is already paying out 95% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.
The Bottom Line
Has Jardine Matheson Holdings got what it takes to maintain its dividend payments? It's not a great combination to see a company with earnings in decline and paying out 95% of its profits, which could imply the dividend may be at risk of being cut in the future. Yet cashflow was much stronger, which makes us wonder if there are some large timing issues in Jardine Matheson Holdings's cash flows, or perhaps the company has written down some assets aggressively, reducing its income. 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 in mind though, if the poor dividend characteristics of Jardine Matheson Holdings don't faze you, it's worth being mindful of the risks involved with this business. For example, we've found 2 warning signs for Jardine Matheson Holdings 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.
