Oriental Food Industries Holdings Berhad's (KLSE:OFI) Upcoming Dividend Will Be Larger Than Last Year's

The board of Oriental Food Industries Holdings Berhad (KLSE:OFI) has announced that it will be increasing its dividend by 400% on the 6th of October to MYR0.005, up from last year's comparable payment of MYR0.001. This takes the annual payment to 2.7% of the current stock price, which unfortunately is below what the industry is paying.

View our latest analysis for Oriental Food Industries Holdings Berhad

Oriental Food Industries Holdings Berhad's Payment Has Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. Based on the last payment, Oriental Food Industries Holdings Berhad was paying only paying out a fraction of earnings, but the payment was a massive 107% of cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

If the trend of the last few years continues, EPS will grow by 4.4% over the next 12 months. 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

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of MYR0.02 in 2012 to the most recent total annual payment of MYR0.028. This works out to be a compound annual growth rate (CAGR) of approximately 3.4% a year over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

The Dividend's Growth Prospects Are Limited

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. However, Oriental Food Industries Holdings Berhad has only grown its earnings per share at 4.4% per annum over the past five years. While EPS growth is quite low, Oriental Food Industries Holdings Berhad has the option to increase the payout ratio to return more cash to shareholders.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Oriental Food Industries Holdings Berhad will make a great income stock. While Oriental Food Industries Holdings Berhad is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. 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. If you are a dividend investor, you might also want to look at our curated 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.