Here's What We Like About MHC Plantations Bhd's (KLSE:MHC) Upcoming Dividend

Readers hoping to buy MHC Plantations Bhd. (KLSE:MHC) 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 one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase MHC Plantations Bhd's shares before the 17th of April to receive the dividend, which will be paid on the 7th of May.

The company's next dividend payment will be RM00.06 per share. Last year, in total, the company distributed RM0.03 to shareholders. Last year's total dividend payments show that MHC Plantations Bhd has a trailing yield of 2.8% on the current share price of RM01.08. If you buy this business for its dividend, you should have an idea of whether MHC Plantations Bhd's dividend is reliable and sustainable. So we need to investigate whether MHC Plantations Bhd can afford its dividend, and if the dividend could grow.

View our latest analysis for MHC Plantations Bhd

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. That's why it's good to see MHC Plantations Bhd paying out a modest 27% of its earnings. A useful secondary check can be to evaluate whether MHC Plantations Bhd generated enough free cash flow to afford its dividend. Luckily it paid out just 14% of its free cash flow 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 MHC Plantations Bhd 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. That's why it's comforting to see MHC Plantations Bhd's earnings have been skyrocketing, up 38% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. MHC Plantations Bhd has delivered an average of 4.1% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

Final Takeaway

From a dividend perspective, should investors buy or avoid MHC Plantations Bhd? It's great that MHC Plantations Bhd is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. MHC Plantations Bhd looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks MHC Plantations Bhd is facing. For example, we've found 2 warning signs for MHC Plantations Bhd that we recommend you consider before investing in the business.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.