Income Investors Should Know That Oriental Food Industries Holdings Berhad (KLSE:OFI) Goes Ex-Dividend Soon

It looks like Oriental Food Industries Holdings Berhad (KLSE:OFI) is about to go ex-dividend in the next four days. This means that investors who purchase shares on or after the 9th of December will not receive the dividend, which will be paid on the 5th of January.

Oriental Food Industries Holdings Berhad's next dividend payment will be RM0.005 per share, on the back of last year when the company paid a total of RM0.015 to shareholders. Last year's total dividend payments show that Oriental Food Industries Holdings Berhad has a trailing yield of 1.8% on the current share price of MYR0.855. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Oriental Food Industries Holdings Berhad can afford its dividend, and if the dividend could grow.

See our latest analysis for Oriental Food Industries Holdings Berhad

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Oriental Food Industries Holdings Berhad paid out a comfortable 34% 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. Luckily it paid out just 18% of its free cash flow last 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?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Oriental Food Industries Holdings Berhad's earnings per share have fallen at approximately 8.9% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Oriental Food Industries Holdings Berhad has seen its dividend decline 2.8% per annum on average over the past 10 years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

The Bottom Line

From a dividend perspective, should investors buy or avoid Oriental Food Industries Holdings Berhad? Oriental Food Industries Holdings Berhad has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

In light of that, while Oriental Food Industries Holdings Berhad has an appealing dividend, it's worth knowing the risks involved with this stock. We've identified 3 warning signs with Oriental Food Industries Holdings Berhad (at least 1 which can't be ignored), and understanding these should be part of your investment process.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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