Yahoo Finance Do These 3 Checks Before Buying Nestlé (Malaysia) Berhad (KLSE:NESTLE) For Its Upcoming Dividend
Nestlé (Malaysia) Berhad (KLSE:NESTLE) stock is about to trade ex-dividend in 3 days. 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. This means that investors who purchase Nestlé (Malaysia) Berhad's shares on or after the 17th of November will not receive the dividend, which will be paid on the 15th of December.
The company's next dividend payment will be RM0.70 per share, and in the last 12 months, the company paid a total of RM2.42 per share. Based on the last year's worth of payments, Nestlé (Malaysia) Berhad has a trailing yield of 1.8% on the current stock price of MYR131.6. If you buy this business for its dividend, you should have an idea of whether Nestlé (Malaysia) Berhad's dividend is reliable and sustainable. So we need to investigate whether Nestlé (Malaysia) Berhad can afford its dividend, and if the dividend could grow.
See our latest analysis for Nestlé (Malaysia) Berhad
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Last year Nestlé (Malaysia) Berhad paid out 95% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Nestlé (Malaysia) Berhad paid out more free cash flow than it generated - 195%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.
As Nestlé (Malaysia) Berhad's dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.
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 Nestlé (Malaysia) Berhad's earnings per share have remained effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Nestlé (Malaysia) Berhad has lifted its dividend by approximately 3.0% a year on average.
Final Takeaway
Is Nestlé (Malaysia) Berhad an attractive dividend stock, or better left on the shelf? Not only are earnings per share flat, but Nestlé (Malaysia) Berhad is paying out an uncomfortably high percentage of both its earnings and cashflow to shareholders as dividends. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Nestlé (Malaysia) Berhad.
Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Nestlé (Malaysia) Berhad. To help with this, we've discovered 2 warning signs for Nestlé (Malaysia) Berhad (1 shouldn't be ignored!) that you ought to be aware of before buying the shares.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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