Here's What We Like About Negri Sembilan Oil Palms Berhad's (KLSE:NSOP) Upcoming Dividend

Readers hoping to buy Negri Sembilan Oil Palms Berhad (KLSE:NSOP) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase Negri Sembilan Oil Palms Berhad's shares on or after the 18th of June, you won't be eligible to receive the dividend, when it is paid on the 28th of June.

The company's next dividend payment will be RM00.06 per share, on the back of last year when the company paid a total of RM0.12 to shareholders. Based on the last year's worth of payments, Negri Sembilan Oil Palms Berhad stock has a trailing yield of around 3.2% on the current share price of RM03.80. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Negri Sembilan Oil Palms Berhad has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Negri Sembilan Oil Palms Berhad

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. Negri Sembilan Oil Palms Berhad is paying out just 23% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Negri Sembilan Oil Palms Berhad generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 41% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Negri Sembilan Oil Palms 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 Negri Sembilan Oil Palms Berhad paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Negri Sembilan Oil Palms Berhad has grown its earnings rapidly, up 47% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

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, Negri Sembilan Oil Palms Berhad has lifted its dividend by approximately 2.9% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Negri Sembilan Oil Palms Berhad is keeping back more of its profits to grow the business.

The Bottom Line

Is Negri Sembilan Oil Palms Berhad worth buying for its dividend? It's great that Negri Sembilan Oil Palms Berhad is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. It's a promising combination that should mark this company worthy of closer attention.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. To help with this, we've discovered 2 warning signs for Negri Sembilan Oil Palms Berhad that you should be aware of before investing in their shares.

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.