Here's What We Like About Oriental Food Industries Holdings Berhad's (KLSE:OFI) Upcoming Dividend

Oriental Food Industries Holdings Berhad (KLSE:OFI) is about to trade ex-dividend in the next 4 days. 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. Therefore, if you purchase Oriental Food Industries Holdings Berhad's shares on or after the 11th of March, you won't be eligible to receive the dividend, when it is paid on the 9th of April.

The company's next dividend payment will be RM00.02 per share, and in the last 12 months, the company paid a total of RM0.065 per share. Based on the last year's worth of payments, Oriental Food Industries Holdings Berhad stock has a trailing yield of around 4.3% on the current share price of RM01.51. 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! We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Oriental Food Industries Holdings 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. Oriental Food Industries Holdings Berhad paid out a comfortable 36% of its profit last year. 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. Fortunately, it paid out only 33% of its free cash flow in the past year.

It's positive to see that Oriental Food Industries Holdings 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 Oriental Food Industries Holdings 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. That's why it's comforting to see Oriental Food Industries Holdings Berhad's earnings have been skyrocketing, up 25% per annum for the past five years. Oriental Food Industries Holdings Berhad is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. 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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Oriental Food Industries Holdings Berhad has delivered an average of 11% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

Should investors buy Oriental Food Industries Holdings Berhad for the upcoming dividend? It's great that Oriental Food Industries Holdings 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. There's a lot to like about Oriental Food Industries Holdings Berhad, and we would prioritise taking a closer look at it.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example - Oriental Food Industries Holdings Berhad has 2 warning signs we think you should be aware of.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.