Should You Buy Hap Seng Plantations Holdings Berhad (KLSE:HSPLANT) For Its Upcoming Dividend?

Readers hoping to buy Hap Seng Plantations Holdings Berhad (KLSE:HSPLANT) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a 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. Accordingly, Hap Seng Plantations Holdings Berhad investors that purchase the stock on or after the 11th of September will not receive the dividend, which will be paid on the 25th of September.

The company's next dividend payment will be RM00.015 per share, on the back of last year when the company paid a total of RM0.12 to shareholders. Looking at the last 12 months of distributions, Hap Seng Plantations Holdings Berhad has a trailing yield of approximately 6.5% on its current stock price of RM01.93. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

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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. Hap Seng Plantations Holdings Berhad paid out 55% of its earnings to investors last year, a normal payout level for most businesses. 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. Dividends consumed 66% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

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.

Check out our latest analysis for Hap Seng Plantations Holdings Berhad

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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. It's encouraging to see Hap Seng Plantations Holdings Berhad has grown its earnings rapidly, up 42% a year for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Hap Seng Plantations Holdings Berhad has lifted its dividend by approximately 1.3% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Hap Seng Plantations 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 Hap Seng Plantations Holdings Berhad? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. That's why we're glad to see Hap Seng Plantations Holdings Berhad's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 55% and 66% respectively. Overall, it's hard to get excited about Hap Seng Plantations Holdings Berhad from a dividend perspective.

While it's tempting to invest in Hap Seng Plantations Holdings Berhad for the dividends alone, you should always be mindful of the risks involved. To that end, you should learn about the 2 warning signs we've spotted with Hap Seng Plantations Holdings Berhad (including 1 which shouldn't be ignored).

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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.