Hexza Corporation Berhad (KLSE:HEXZA) is about to trade ex-dividend in the next three days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. Accordingly, Hexza Corporation Berhad investors that purchase the stock on or after the 2nd of December will not receive the dividend, which will be paid on the 19th of December.
The company's next dividend payment will be RM0.04 per share. Last year, in total, the company distributed RM0.04 to shareholders. Last year's total dividend payments show that Hexza Corporation Berhad has a trailing yield of 4.7% on the current share price of MYR0.85. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Hexza Corporation Berhad can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Hexza Corporation Berhad
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Hexza Corporation Berhad paid out 159% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. 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. Over the last year, it paid out dividends equivalent to 322% of what it generated in free cash flow, a disturbingly high percentage. Unless there were something in the business we're not grasping, this could signal a risk that the dividend may have to be cut in the future.
Hexza Corporation Berhad does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.
Cash is slightly more important than profit from a dividend perspective, but given Hexza Corporation Berhad's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.
Click here to see how much of its profit Hexza Corporation Berhad paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're discomforted by Hexza Corporation Berhad's 25% 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. Hexza Corporation Berhad's dividend payments per share have declined at 2.2% per year on average over the past 10 years, which is uninspiring. 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.
Is Hexza Corporation Berhad worth buying for its dividend? Not only are earnings per share declining, but Hexza Corporation Berhad is paying out an uncomfortably high percentage of both its earnings and cashflow to shareholders as dividends. Unless there are grounds to believe a turnaround is imminent, this is one of the least attractive dividend stocks under this analysis. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.
Although, if you're still interested in Hexza Corporation Berhad and want to know more, you'll find it very useful to know what risks this stock faces. For instance, we've identified 3 warning signs for Hexza Corporation Berhad (1 shouldn't be ignored) you should be aware of.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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.
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