APM Automotive Holdings Berhad (KLSE:APM) Looks Interesting, And It's About To Pay A Dividend

Readers hoping to buy APM Automotive Holdings Berhad (KLSE:APM) 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 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase APM Automotive Holdings Berhad's shares before the 14th of March in order to be eligible for the dividend, which will be paid on the 27th of March.

The company's upcoming dividend is RM00.11 a share, following on from the last 12 months, when the company distributed a total of RM0.14 per share to shareholders. Calculating the last year's worth of payments shows that APM Automotive Holdings Berhad has a trailing yield of 7.6% on the current share price of RM02.89. 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 APM Automotive Holdings Berhad can afford its dividend, and if the dividend could grow.

See our latest analysis for APM Automotive Holdings Berhad

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. APM Automotive Holdings Berhad paid out 58% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether APM Automotive Holdings Berhad generated enough free cash flow to afford its dividend. The good news is it paid out just 13% of its free cash flow in the 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.

Click here to see how much of its profit APM Automotive Holdings Berhad paid out over the last 12 months.

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. With that in mind, we're encouraged by the steady growth at APM Automotive Holdings Berhad, with earnings per share up 9.5% on average over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. APM Automotive Holdings Berhad's dividend payments per share have declined at 3.7% per year on average over the past 10 years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

Final Takeaway

Should investors buy APM Automotive Holdings Berhad for the upcoming dividend? While earnings per share growth has been modest, APM Automotive Holdings Berhad's dividend payouts are around an average level; without a sharp change in earnings we feel that the dividend is likely somewhat sustainable. Pleasingly the company paid out a conservatively low percentage of its free cash flow. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

On that note, you'll want to research what risks APM Automotive Holdings Berhad is facing. Our analysis shows 1 warning sign for APM Automotive Holdings Berhad and you should be aware of this before buying any shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.