Is It Smart To Buy Sarawak Oil Palms Berhad (KLSE:SOP) Before It Goes Ex-Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Sarawak Oil Palms Berhad (KLSE:SOP) is about to trade ex-dividend in the next four days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. This means that investors who purchase Sarawak Oil Palms Berhad's shares on or after the 17th of September will not receive the dividend, which will be paid on the 17th of October.

The company's next dividend payment will be RM00.04 per share, and in the last 12 months, the company paid a total of RM0.10 per share. Looking at the last 12 months of distributions, Sarawak Oil Palms Berhad has a trailing yield of approximately 3.3% on its current stock price of RM03.06. 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 Sarawak Oil Palms Berhad can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Sarawak Oil Palms 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. Sarawak Oil Palms Berhad paid out just 23% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Sarawak Oil Palms Berhad generated enough free cash flow to afford its dividend. It paid out 23% of its free cash flow as dividends last year, which is conservatively low.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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 fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Sarawak Oil Palms Berhad's earnings have been skyrocketing, up 43% per annum for the past five years. Sarawak Oil Palms Berhad earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky "beep-beep". We also like that it is reinvesting most of its profits in its business.'

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Sarawak Oil Palms Berhad has delivered an average of 12% per year annual increase in its dividend, based on the past 10 years of dividend payments. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

Final Takeaway

Should investors buy Sarawak Oil Palms Berhad for the upcoming dividend? It's great that Sarawak Oil Palms 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. Sarawak Oil Palms Berhad looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

So while Sarawak Oil Palms Berhad looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example, Sarawak Oil Palms Berhad has 2 warning signs (and 1 which is significant) we think you should know about.

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.