Hup Seng Industries Berhad (KLSE:HUPSENG) Pays A RM00.02 Dividend In Just Two Days

It looks like Hup Seng Industries Berhad (KLSE:HUPSENG) is about to go ex-dividend in the next 2 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. 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. Meaning, you will need to purchase Hup Seng Industries Berhad's shares before the 20th of March to receive the dividend, which will be paid on the 9th of April.

The company's next dividend payment will be RM00.02 per share. Last year, in total, the company distributed RM0.06 to shareholders. Based on the last year's worth of payments, Hup Seng Industries Berhad stock has a trailing yield of around 7.0% on the current share price of RM00.86. 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! So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Hup Seng Industries 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. It paid out 82% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be concerned if earnings began to decline. A useful secondary check can be to evaluate whether Hup Seng Industries Berhad generated enough free cash flow to afford its dividend. It distributed 48% of its free cash flow as dividends, a comfortable payout level for most companies.

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?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. That explains why we're not overly excited about Hup Seng Industries Berhad's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. A payout ratio of 82% looks like a tacit signal from management that reinvestment opportunities in the business are low. In line with limited earnings growth in recent years, this is not the most appealing combination.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Hup Seng Industries Berhad has lifted its dividend by approximately 1.9% a year on average.

Final Takeaway

Should investors buy Hup Seng Industries Berhad for the upcoming dividend? Earnings per share have been flat and Hup Seng Industries Berhad's dividend payouts are within reasonable limits; without a sharp decline in earnings we feel that the dividend is likely somewhat sustainable. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Hup Seng Industries Berhad's dividend merits.

On that note, you'll want to research what risks Hup Seng Industries Berhad is facing. Every company has risks, and we've spotted 1 warning sign for Hup Seng Industries 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.

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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.