Here's What We Like About Chin Teck Plantations Berhad's (KLSE:CHINTEK) Upcoming 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 Chin Teck Plantations Berhad (KLSE:CHINTEK) is about to go ex-dividend in just three days. The ex-dividend date is usually set to be one business day 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase Chin Teck Plantations Berhad's shares before the 13th of December in order to be eligible for the dividend, which will be paid on the 27th of December.

The company's next dividend payment will be RM00.15 per share. Last year, in total, the company distributed RM0.40 to shareholders. Based on the last year's worth of payments, Chin Teck Plantations Berhad has a trailing yield of 4.8% on the current stock price of RM08.30. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Chin Teck Plantations 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. Chin Teck Plantations Berhad has a low and conservative payout ratio of just 17% of its income after tax. 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 23% of its free cash flow as dividends last year, which is conservatively low.

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?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Chin Teck Plantations Berhad's earnings have been skyrocketing, up 22% per annum for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Chin Teck Plantations Berhad looks like a promising growth company.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Chin Teck Plantations Berhad has delivered 4.4% dividend growth per year on average over the past 10 years. Earnings per share have been growing much quicker than dividends, potentially because Chin Teck Plantations Berhad is keeping back more of its profits to grow the business.

The Bottom Line

Has Chin Teck Plantations Berhad got what it takes to maintain its dividend payments? Chin Teck Plantations Berhad has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. It's a promising combination that should mark this company worthy of closer attention.

In light of that, while Chin Teck Plantations Berhad has an appealing dividend, it's worth knowing the risks involved with this stock. Our analysis shows 1 warning sign for Chin Teck Plantations Berhad and you should be aware of it before buying any shares.

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.