Only Three Days Left To Cash In On Far East Holdings Berhad's (KLSE:FAREAST) Dividend

Far East Holdings Berhad (KLSE:FAREAST) stock is about to trade ex-dividend in 3 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 as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase Far East Holdings Berhad's shares on or after the 12th of September, you won't be eligible to receive the dividend, when it is paid on the 27th of September.

The company's upcoming dividend is RM00.05 a share, following on from the last 12 months, when the company distributed a total of RM0.11 per share to shareholders. Based on the last year's worth of payments, Far East Holdings Berhad has a trailing yield of 2.9% on the current stock price of RM03.75. If you buy this business for its dividend, you should have an idea of whether Far East Holdings Berhad's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Far East Holdings 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. Far East Holdings Berhad paid out a comfortable 42% of its profit last year. 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 more than half (74%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Far East Holdings Berhad's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit Far East Holdings Berhad paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Far East Holdings Berhad has grown its earnings rapidly, up 26% a year for the past five years.

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, Far East Holdings Berhad has lifted its dividend by approximately 5.3% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Far East Holdings Berhad is keeping back more of its profits to grow the business.

The Bottom Line

From a dividend perspective, should investors buy or avoid Far East Holdings Berhad? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. Overall we think this is an attractive combination and worthy of further research.

In light of that, while Far East Holdings Berhad has an appealing dividend, it's worth knowing the risks involved with this stock. Every company has risks, and we've spotted 1 warning sign for Far East Holdings Berhad you should know about.

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.

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

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.