Readers hoping to buy Harbour-Link Group Berhad (KLSE:HARBOUR) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Harbour-Link Group Berhad's shares on or after the 13th of March will not receive the dividend, which will be paid on the 3rd of April.

The company's next dividend payment will be RM00.03 per share. Last year, in total, the company distributed RM0.06 to shareholders. Calculating the last year's worth of payments shows that Harbour-Link Group Berhad has a trailing yield of 4.3% on the current share price of RM01.40. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Harbour-Link Group Berhad can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Harbour-Link Group Berhad

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. Harbour-Link Group Berhad has a low and conservative payout ratio of just 22% of its income after tax. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the past year it paid out 157% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Harbour-Link Group Berhad does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

Harbour-Link Group Berhad paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Harbour-Link Group Berhad to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.