RCE Capital Berhad( KLSE:RCECAP ) stock is about to trade ex-dividend in 4 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 of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. This means that investors who purchase RCE Capital Berhad's shares on or after the 16th of December will not receive the dividend, which will be paid on the 30th of December.
The company's next dividend payment will be RM00.03 per share. Last year, in total, the company distributed RM0.065 to shareholders. Based on the last year's worth of payments, RCE Capital Berhad stock has a trailing yield of around 5.4% on the current share price of RM01.21. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Last year, RCE Capital Berhad paid out 93% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business.
When a company pays out a dividend that is not well covered by profits, the dividend is generally seen as more vulnerable to being cut.
See our latest analysis for RCE Capital Berhad
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. So we're not too excited that RCE Capital Berhad's earnings are down 3.5% a year over the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, RCE Capital Berhad has lifted its dividend by approximately 15% a year on average. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. RCE Capital Berhad is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.
The Bottom Line
From a dividend perspective, should investors buy or avoid RCE Capital Berhad? Earnings per share are in decline and RCE Capital Berhad is paying out what we feel is an uncomfortably high percentage of its profit as dividends. Generally we think dividend investors should avoid businesses in this situation, as high payout ratios and declining earnings can lead to the dividend being cut. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.
Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with RCE Capital Berhad. In terms of investment risks, we've identified 2 warning signs with RCE Capital 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.
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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.
