Do These 3 Checks Before Buying PETRONAS Gas Berhad (KLSE:PETGAS) For Its Upcoming Dividend
PETRONAS Gas Berhad (KLSE:PETGAS) stock is about to trade ex-dividend in 3 days. The ex-dividend date is commonly two business days 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 at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase PETRONAS Gas Berhad's shares on or after the 11th of September, you won't be eligible to receive the dividend, when it is paid on the 29th of September.
The company's next dividend payment will be RM00.16 per share, on the back of last year when the company paid a total of RM0.72 to shareholders. Calculating the last year's worth of payments shows that PETRONAS Gas Berhad has a trailing yield of 4.2% on the current share price of RM017.26. If you buy this business for its dividend, you should have an idea of whether PETRONAS Gas Berhad's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 84% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in earnings. 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. Over the last year, it paid out dividends equivalent to 212% 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 PETRONAS Gas Berhad intends to continue funding this dividend, or if it could be forced to cut the payment.
While PETRONAS Gas Berhad's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were PETRONAS Gas Berhad to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
Check out our latest analysis for PETRONAS Gas Berhad
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's not ideal to see PETRONAS Gas Berhad's earnings per share have been shrinking at 3.3% a year over the previous five years.
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, PETRONAS Gas Berhad has increased its dividend at approximately 1.8% a year on average.
Final Takeaway
Is PETRONAS Gas Berhad worth buying for its dividend? PETRONAS Gas Berhad had an average payout ratio, but its free cash flow was lower and earnings per share have been declining. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.
Although, if you're still interested in PETRONAS Gas Berhad and want to know more, you'll find it very useful to know what risks this stock faces. Every company has risks, and we've spotted 1 warning sign for PETRONAS Gas Berhad you should know about.
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.