Income investors should be aware that Luxchem Corporation Berhad (KLSE: LUXCHEM) will soon be ex-dividend

Luxchem Corporation Berhad (KLSE: LUXCHEM) is set to trade ex-dividend in the next 3 days. The ex-dividend date is usually one business day before the record date which is the latest date by which you must be present on the books of the company as a shareholder in order to receive the dividend. The ex-dividend date is important because each time a stock is bought or sold, the transaction takes at least two business days to settle. In other words, investors can buy shares of Luxchem Corporation Berhad before April 14 in order to be eligible for the dividend, which will be paid on May 13.

The company’s next dividend payment will be RM0.01 per share, following last year when the company paid a total of RM0.027 to shareholders. Last year’s total dividend payout shows that Luxchem Corporation Berhad has a yield of 3.8% on the current share price of MYR 0.71. We love to see companies pay out a dividend, but it’s also important to make sure that laying the golden eggs doesn’t kill our golden hen! We need to see if the dividend is covered by earnings and if it increases.

See our latest analysis for Luxchem Corporation Berhad

Dividends are usually paid out of company earnings, so if a company pays out more than it has earned, its dividend is usually at risk of being reduced. Luxchem Corporation Berhad paid a comfortable 40% of its profit last year. Still, cash flow is even more important than earnings in evaluating a dividend, so we need to see if the company has generated enough cash to pay its distribution. Over the past year, it has paid out 118% of its free cash flow as dividends, which is uncomfortably high. We’re curious why the company paid out more money than it generated last year, as this may be one of the first signs that a dividend may be unsustainable.

Luxchem Corporation Berhad has a large net cash position on the balance sheet, which could fund large dividends for some time, if the company wished. Yet, savvy investors know that dividends are best valued against the cash and profits generated by the company. Paying cash dividends on the balance sheet is unsustainable in the long term.

Luxchem Corporation Berhad paid less dividends than it reported earnings, but unfortunately it did not generate enough cash to cover the dividend. Cash is king, as they say, and if Luxchem Corporation Berhad were to repeatedly pay dividends that are not well covered by cash flow, we would consider that a warning sign.

Click here to see how much of its profit Luxchem Corporation Berhad has paid in the last 12 months.

KLSE: LUXCHEM Historic dividend April 10, 2022

Have earnings and dividends increased?

Companies with consistently rising earnings per share tend to create the best dividend-paying stocks because they generally find it easier to increase dividends per share. If business goes into a recession and the dividend is cut, the company could see its value drop precipitously. That’s why it’s a relief to see Luxchem Corporation Berhad’s earnings per share increasing by 3.7% per year over the past five years. Earnings have increased somewhat, but we are concerned that dividend payments have consumed most of the company’s cash flow over the past year.

It should also be noted that Luxchem Corporation Berhad issued a significant number of new shares during the past year. It is difficult to increase dividends per share when a company continues to create new shares.

Most investors primarily gauge a company’s dividend prospects by checking the historical rate of dividend growth. Luxchem Corporation Berhad has recorded dividend growth of 4.9% per year on average over the past 10 years. It’s encouraging to see the company increasing its dividends as earnings rise, suggesting at least some corporate interest in rewarding shareholders.

Last takeaway

Is Luxchem Corporation Berhad an attractive dividend stock, or is it better left on the shelf? Luxchem Corporation Berhad has seen reasonable growth in earnings per share lately and paid out less than half of its earnings and 118% of its cash flow over the past year, which is a lackluster result. To sum up, Luxchem Corporation Berhad seems correct on this analysis, even if it does not seem like a remarkable opportunity.

If you want to learn more about Luxchem Corporation Berhad, it is useful to know the risks that this company faces. To help you, we found 2 warning signs for Luxchem Corporation Berhad which you should be aware of before investing in their stocks.

As a general rule, we don’t recommend simply buying the first dividend-paying stock you see. Here is a curated list of attractive stocks that are strong dividend payers.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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