Some investors rely on dividends to grow their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that SEG International Bhd (KLSE:SEG) is set to go ex-dividend in just four days. The ex-dividend date is one business day before a company’s record date, which is the date the company determines which shareholders are entitled to receive a 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. So, you can buy shares of SEG International Bhd before June 21 in order to receive the dividend, which the company will pay on July 8.

The company’s next dividend is RM0.01 per share, after the last 12 months when the company distributed a total of RM0.03 per share to shareholders. Looking at the last 12 months of distributions, SEG International Bhd has a yield of around 4.7% on its current share price of MYR 0.635. Dividends are a major contributor to investment returns for long-term holders, but only if the dividend continues to be paid. Therefore, readers should always check whether SEG International Bhd was able to increase its dividend or if the dividend could be reduced.

Check out our latest analysis for SEG International Bhd

Dividends are usually paid out of company profits. If a company pays out more dividends than it earns in profits, then the dividend could be unsustainable. Fortunately, SEG International Bhd’s payout ratio is modest at just 26% of earnings. Still, cash flow is usually more important than earnings in assessing the sustainability of dividends, so we always need to check whether the company has generated enough cash to pay its dividend. It distributed 38% of its free cash flow as dividends, a comfortable level of distribution for most companies.

It is positive to see that SEG International Bhd’s dividend is covered by both earnings and cash flow, as this is usually a sign that the dividend is sustainable, and a lower payout ratio usually suggests greater margin of safety before the dividend is cut.

Click here to see how much of its profits SEG International Bhd has paid out over the past 12 months.

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. Investors love dividends, so if earnings fall and the dividend is cut, expect a stock to sell heavily at the same time. For this reason, we are pleased to see that SEG International Bhd’s earnings per share have increased by 11% annually over the past five years. The company managed to grow its profits at a rapid pace, while reinvesting most of the profits back into the business. This will make it easier to fund future growth efforts and we think it’s an attractive combination – plus the dividend can always be increased later.

Another key way to gauge a company’s dividend outlook is to measure its historical rate of dividend growth. Dividend payouts per share of SEG International Bhd have declined by an average of 6.4% per year over the past 10 years, which is uninspiring. It is unusual to see earnings per share increase at the same time as dividends per share decrease. We’re hoping that’s because the company is reinvesting heavily in its business, but it could also suggest that business is lumpy.

To sum up

Is SEG International Bhd an attractive dividend stock, or is it better left on the shelf? SEG International Bhd increased its earnings per share while simultaneously reinvesting in the business. Unfortunately, it has cut the dividend at least once in the last 10 years, but the conservative payout ratio makes the current dividend look sustainable. SEG International Bhd looks solid on this overall analysis, and we would definitely consider investigating it further.

With this in mind, an essential part of thorough stock research is to be aware of all the risks stocks currently face. For example, we found 1 warning sign for SEG International Bhd which we recommend you consider before investing in the company.

If you are looking for good dividend payers, we recommend by consulting our selection of the best dividend-paying stocks.

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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.