Is It Smart To Buy MKH Oil Palm (East Kalimantan) Berhad (KLSE:MKHOP) Before It Goes Ex-Dividend?

Readers hoping to buy MKH Oil Palm (East Kalimantan) Berhad (KLSE:MKHOP) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase MKH Oil Palm (East Kalimantan) Berhad's shares before the 11th of December to receive the dividend, which will be paid on the 30th of December.

The company's next dividend payment will be RM00.02 per share. Last year, in total, the company distributed RM0.04 to shareholders. Looking at the last 12 months of distributions, MKH Oil Palm (East Kalimantan) Berhad has a trailing yield of approximately 6.4% on its current stock price of RM00.625. 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.

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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. Fortunately MKH Oil Palm (East Kalimantan) Berhad's payout ratio is modest, at just 49% of profit. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Dividends consumed 50% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's positive to see that MKH Oil Palm (East Kalimantan) 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.

See our latest analysis for MKH Oil Palm (East Kalimantan) Berhad

Click here to see how much of its profit MKH Oil Palm (East Kalimantan) 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. Fortunately for readers, MKH Oil Palm (East Kalimantan) Berhad's earnings per share have been growing at 11% a year for the past five years. MKH Oil Palm (East Kalimantan) Berhad has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.

Given that MKH Oil Palm (East Kalimantan) Berhad has only been paying a dividend for a year, there's not much of a past history to draw insight from.

Final Takeaway

From a dividend perspective, should investors buy or avoid MKH Oil Palm (East Kalimantan) 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. There's a lot to like about MKH Oil Palm (East Kalimantan) Berhad, and we would prioritise taking a closer look at it.

Want to learn more about MKH Oil Palm (East Kalimantan) Berhad? Here's a visualisation of its historical rate of revenue and earnings growth.

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.