There's A Lot To Like About Sarawak Oil Palms Berhad's (KLSE:SOP) Upcoming RM0.05 Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Sarawak Oil Palms Berhad (KLSE:SOP) is about to go ex-dividend in just 3 days. Ex-dividend means that investors that purchase the stock on or after the 16th of July will not receive this dividend, which will be paid on the 30th of July.

Sarawak Oil Palms Berhad's upcoming dividend is RM0.05 a share, following on from the last 12 months, when the company distributed a total of RM0.05 per share to shareholders. Calculating the last year's worth of payments shows that Sarawak Oil Palms Berhad has a trailing yield of 1.7% on the current share price of MYR2.99. 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 check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Sarawak Oil Palms 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. Sarawak Oil Palms Berhad paid out just 19% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. What's good is that dividends were well covered by free cash flow, with the company paying out 8.7% of its 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 the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're not enthused to see that Sarawak Oil Palms Berhad's earnings per share have remained effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. Sarawak Oil Palms Berhad is retaining more than three-quarters of its earnings and has a history of generating some growth in earnings. We think this is a reasonable combination.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Sarawak Oil Palms Berhad has delivered an average of 5.2% per year annual increase in its dividend, based on the past ten years of dividend payments.

Final Takeaway

Is Sarawak Oil Palms Berhad an attractive dividend stock, or better left on the shelf? Earnings per share have been flat over this time, but we're intrigued to see that Sarawak Oil Palms Berhad is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. Generally we like to see both low payout ratios and strong earnings per share growth, but Sarawak Oil Palms Berhad is halfway there. There's a lot to like about Sarawak Oil Palms Berhad, and we would prioritise taking a closer look at it.

So while Sarawak Oil Palms Berhad looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Our analysis shows 1 warning sign for Sarawak Oil Palms Berhad and you should be aware of it before buying any shares.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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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