Oriental Food Industries Holdings Berhad (KLSE:OFI) Is Reducing Its Dividend To MYR0.005

Oriental Food Industries Holdings Berhad (KLSE:OFI) has announced that on 10th of January, it will be paying a dividend ofMYR0.005, which a reduction from last year's comparable dividend. The yield is still above the industry average at 3.9%.

See our latest analysis for Oriental Food Industries Holdings Berhad

Oriental Food Industries Holdings Berhad's Payment Could Potentially Have Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. But before making this announcement, Oriental Food Industries Holdings Berhad's earnings quite easily covered the dividend. However, with more than 75% of free cash flow being paid out to shareholders, future growth could potentially be constrained.

Looking forward, earnings per share could rise by 28.1% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 30% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of MYR0.0238 in 2014 to the most recent total annual payment of MYR0.065. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. Oriental Food Industries Holdings Berhad has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Oriental Food Industries Holdings Berhad has impressed us by growing EPS at 28% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

Our Thoughts On Oriental Food Industries Holdings Berhad's Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Oriental Food Industries Holdings Berhad has been making. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for Oriental Food Industries Holdings Berhad that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.