Don’t Race Out To Buy Matrix Concepts Holdings Berhad (KLSE:MATRIX) Just Because It’s Going Ex-Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see Matrix Concepts Holdings Berhad (KLSE:MATRIX) is about to trade ex-dividend in the next four days. 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase Matrix Concepts Holdings Berhad’s shares before the 21st of June in order to be eligible for the dividend, which will be paid on the 7th of July.

The company’s next dividend payment will be RM0.037 per share, and in the last 12 months, the company paid a total of RM0.13 per share. Based on the last year’s worth of payments, Matrix Concepts Holdings Berhad stock has a trailing yield of around 5.2% on the current share price of MYR2.4. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it’s growing.

Check out our latest analysis for Matrix Concepts 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. Matrix Concepts Holdings Berhad paid out more than half (51%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Matrix Concepts Holdings Berhad generated enough free cash flow to afford its dividend. The company paid out 105% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Companies usually need cash more than they need earnings – expenses don’t pay themselves – so it’s not great to see it paying out so much of its cash flow.

While Matrix Concepts Holdings 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. Were this to happen repeatedly, this would be a risk to Matrix Concepts Holdings Berhad’s ability to maintain its dividend.

Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.

KLSE:MATRIX Historic Dividend June 16th 2022

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It’s not encouraging to see that Matrix Concepts Holdings Berhad’s earnings are effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. It looks like the Matrix Concepts Holdings Berhad dividends are largely the same as they were nine years ago.

To Sum It Up

Is Matrix Concepts Holdings Berhad worth buying for its dividend? It’s not great to see earnings per share have been flat and that the company paid out an uncomfortably high percentage of its cash flow over the past year. Cash flows are typically more volatile than earnings, but this is still not what we like to see. Overall it doesn’t look like the most suitable dividend stock for a long-term buy and hold investor.

With that being said, if you’re still considering Matrix Concepts Holdings Berhad as an investment, you’ll find it beneficial to know what risks this stock is facing. In terms of investment risk, we’ve identified 1 warning sign with Matrix Concepts Holdings Berhad and understanding them should be part of your investment process.

If you’re in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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