Formosa Prosonic Industries Berhad (KLSE:FPI) Pays A RM00.18 Dividend In Just Three Days

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 Formosa Prosonic Industries Berhad (KLSE:FPI) is about to go ex-dividend in just three days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Meaning, you will need to purchase Formosa Prosonic Industries Berhad's shares before the 13th of March to receive the dividend, which will be paid on the 28th of March.

The company's next dividend payment will be RM00.18 per share, and in the last 12 months, the company paid a total of RM0.18 per share. Based on the last year's worth of payments, Formosa Prosonic Industries Berhad has a trailing yield of 6.7% on the current stock price of RM02.68. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Formosa Prosonic Industries Berhad

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. Formosa Prosonic Industries Berhad paid out 69% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Formosa Prosonic Industries Berhad generated enough free cash flow to afford its dividend. The company paid out 92% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

Formosa Prosonic Industries 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 Formosa Prosonic Industries 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 Formosa Prosonic Industries 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 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 encouraged by the steady growth at Formosa Prosonic Industries Berhad, with earnings per share up 9.1% on average over the last five years. Earnings have been growing at a steady rate, 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, Formosa Prosonic Industries Berhad has lifted its dividend by approximately 12% 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.

To Sum It Up

From a dividend perspective, should investors buy or avoid Formosa Prosonic Industries Berhad? Earnings per share have grown somewhat, although Formosa Prosonic Industries Berhad paid out over half its profits and the dividend was not well covered by free cash flow. It's not that we think Formosa Prosonic Industries Berhad is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Although, if you're still interested in Formosa Prosonic Industries Berhad and want to know more, you'll find it very useful to know what risks this stock faces. Case in point: We've spotted 2 warning signs for Formosa Prosonic Industries 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.