MKH Oil Palm (East Kalimantan) Berhad (KLSE:MKHOP) Looks Interesting, And It's About To Pay A Dividend

MKH Oil Palm (East Kalimantan) Berhad (KLSE:MKHOP) stock is about to trade ex-dividend in three days. The ex-dividend date occurs one day 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. In other words, investors can purchase MKH Oil Palm (East Kalimantan) Berhad's shares before the 12th of December in order to be eligible for the dividend, which will be paid on the 30th of December.

The upcoming dividend for MKH Oil Palm (East Kalimantan) Berhad is RM00.02 per share. If you buy this business for its dividend, you should have an idea of whether MKH Oil Palm (East Kalimantan) Berhad's dividend is reliable and sustainable. So we need to investigate whether MKH Oil Palm (East Kalimantan) Berhad can afford its dividend, and if the dividend could grow.

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

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see MKH Oil Palm (East Kalimantan) Berhad paying out a modest 48% of its earnings. A useful secondary check can be to evaluate whether MKH Oil Palm (East Kalimantan) Berhad generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 33% of the free cash flow it generated, which is a comfortable payout ratio.

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.

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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see MKH Oil Palm (East Kalimantan) Berhad earnings per share are up 5.7% per annum over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

MKH Oil Palm (East Kalimantan) Berhad also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.

This is MKH Oil Palm (East Kalimantan) Berhad's first year of paying a regular dividend, which is exciting for shareholders - but it does mean there's no dividend history to examine.

To Sum It Up

Should investors buy MKH Oil Palm (East Kalimantan) Berhad for the upcoming dividend? Earnings per share have been growing moderately, and MKH Oil Palm (East Kalimantan) Berhad is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and MKH Oil Palm (East Kalimantan) Berhad is halfway there. Overall we think this is an attractive combination and worthy of further research.

Want to learn more about MKH Oil Palm (East Kalimantan) Berhad's dividend performance? Check out this visualisation of its historical revenue and earnings growth.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.