Oriental Food Industries Holdings Berhad (KLSE:OFI) Could Be A Buy For Its Upcoming Dividend

Oriental Food Industries Holdings Berhad (KLSE:OFI) stock is about to trade ex-dividend in 3 days. 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 Oriental Food Industries Holdings Berhad's shares on or after the 12th of December, you won't be eligible to receive the dividend, when it is paid on the 10th of January.

The company's upcoming dividend is RM00.005 a share, following on from the last 12 months, when the company distributed a total of RM0.065 per share to shareholders. Based on the last year's worth of payments, Oriental Food Industries Holdings Berhad stock has a trailing yield of around 3.8% on the current share price of RM01.69. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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 37% of its profit last year. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 75% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

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 strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Oriental Food Industries Holdings Berhad has grown its earnings rapidly, up 24% a year for the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Oriental Food Industries Holdings Berhad has lifted its dividend by approximately 11% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

To Sum It Up

Should investors buy Oriental Food Industries Holdings Berhad for the upcoming dividend? Earnings per share have grown at a nice rate in recent times and over the last year, Oriental Food Industries Holdings Berhad paid out less than half its earnings and a bit over half its free cash flow. 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.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.