Only Three Days Left To Cash In On Kumpulan Fima Berhad's (KLSE:KFIMA) Dividend

It looks like Kumpulan Fima Berhad (KLSE:KFIMA) is about to go ex-dividend in the next three days. 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. Thus, you can purchase Kumpulan Fima Berhad's shares before the 1st of August in order to receive the dividend, which the company will pay on the 16th of August.

The company's next dividend payment will be RM00.12 per share, and in the last 12 months, the company paid a total of RM0.12 per share. Last year's total dividend payments show that Kumpulan Fima Berhad has a trailing yield of 5.4% on the current share price of RM02.22. If you buy this business for its dividend, you should have an idea of whether Kumpulan Fima Berhad's dividend is reliable and sustainable. As a result, readers should always check whether Kumpulan Fima Berhad has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Kumpulan Fima 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. Fortunately Kumpulan Fima Berhad's payout ratio is modest, at just 34% of profit. 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. It paid out an unsustainably high 224% of its free cash flow as dividends over the past 12 months, which is worrying. It's pretty hard to pay out more than you earn, so we wonder how Kumpulan Fima Berhad intends to continue funding this dividend, or if it could be forced to cut the payment.

Kumpulan Fima 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.

While Kumpulan Fima Berhad's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Kumpulan Fima Berhad to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see how much of its profit Kumpulan Fima Berhad paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Kumpulan Fima Berhad, with earnings per share up 4.5% on average over the last five years. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Kumpulan Fima Berhad has lifted its dividend by approximately 4.1% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Is Kumpulan Fima Berhad worth buying for its dividend? Kumpulan Fima Berhad delivered reasonable earnings per share growth in recent times, and paid out less than half its profits and 224% of its cash flow over the last year, which is a mediocre outcome. Overall, it's hard to get excited about Kumpulan Fima Berhad from a dividend perspective.

With that being said, if dividends aren't your biggest concern with Kumpulan Fima Berhad, you should know about the other risks facing this business. Case in point: We've spotted 1 warning sign for Kumpulan Fima Berhad you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com