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Readers hoping to buy FM Global Logistics Holdings Berhad (KLSE:FM) 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 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. Meaning, you will need to purchase FM Global Logistics Holdings Berhad’s shares before the 6th of July to receive the dividend, which will be paid on the 28th of July.
The company’s next dividend payment will be RM0.01 per share. Last year, in total, the company distributed RM0.04 to shareholders. Based on the last year’s worth of payments, FM Global Logistics Holdings Berhad has a trailing yield of 7.1% on the current stock price of MYR0.565. 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 FM Global Logistics Holdings Berhad can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. That’s why it’s good to see FM Global Logistics Holdings Berhad paying out a modest 48% of its 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. Luckily it paid out just 18% of its free cash flow last year.
It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it’s easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, FM Global Logistics Holdings Berhad’s earnings per share have been growing at 17% a year for the past five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. FM Global Logistics Holdings Berhad has delivered 12% dividend growth per year on average over the past 10 years. It’s exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
Is FM Global Logistics Holdings Berhad worth buying for its dividend? It’s great that FM Global Logistics Holdings Berhad is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It’s disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. It’s a promising combination that should mark this company worthy of closer attention.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Every company has risks, and we’ve spotted 2 warning signs for FM Global Logistics Holdings Berhad you should know about.
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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