Is It Smart To Buy United Plantations Berhad (KLSE:UTDPLT) Before It Goes Ex-Dividend?

United Plantations Berhad (KLSE:UTDPLT) is about to trade ex-dividend in the next 3 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. Therefore, if you purchase United Plantations Berhad's shares on or after the 19th of November, you won't be eligible to receive the dividend, when it is paid on the 3rd of December.

The company's upcoming dividend is RM0.30 a share, following on from the last 12 months, when the company distributed a total of RM0.80 per share to shareholders. Looking at the last 12 months of distributions, United Plantations Berhad has a trailing yield of approximately 5.7% on its current stock price of MYR14.08. 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 check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for United Plantations 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. Fortunately United Plantations Berhad's payout ratio is modest, at just 40% of profit. A useful secondary check can be to evaluate whether United Plantations Berhad generated enough free cash flow to afford its dividend. It distributed 30% of its free cash flow as dividends, a comfortable payout level for most companies.

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 how much of its profit United Plantations Berhad paid out over the last 12 months.

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see United Plantations Berhad earnings per share are up 9.8% per annum over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, United Plantations Berhad has increased its dividend at approximately 15% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

Should investors buy United Plantations Berhad for the upcoming dividend? Earnings per share growth has been growing somewhat, and United Plantations Berhad is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but United Plantations Berhad is being conservative with its dividend payouts and could still perform reasonably over the long run. United Plantations Berhad looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks United Plantations Berhad is facing. In terms of investment risks, we've identified 1 warning sign with United Plantations Berhad and understanding them should be part of your investment process.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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.

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