We Wouldn't Be Too Quick To Buy OKA Corporation Bhd (KLSE:OKA) 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 OKA Corporation Bhd (KLSE:OKA) is about to trade ex-dividend in the next 4 days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase OKA Corporation Bhd's shares on or after the 12th of November will not receive the dividend, which will be paid on the 21st of November.

The company's next dividend payment will be RM00.013 per share, on the back of last year when the company paid a total of RM0.026 to shareholders. Looking at the last 12 months of distributions, OKA Corporation Bhd has a trailing yield of approximately 5.5% on its current stock price of RM00.475. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether OKA Corporation Bhd has been able to grow its dividends, or if the dividend might be cut.

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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. OKA Corporation Bhd paid out 66% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether OKA Corporation Bhd generated enough free cash flow to afford its dividend. Over the past year it paid out 153% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

OKA Corporation Bhd does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

While OKA Corporation Bhd's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were OKA Corporation Bhd to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

See our latest analysis for OKA Corporation Bhd

Click here to see how much of its profit OKA Corporation Bhd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. So we're not too excited that OKA Corporation Bhd's earnings are down 3.9% a year over the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. OKA Corporation Bhd has delivered 2.7% dividend growth per year on average over the past 10 years. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.

To Sum It Up

Has OKA Corporation Bhd got what it takes to maintain its dividend payments? OKA Corporation Bhd had an average payout ratio, but its free cash flow was lower and earnings per share have been declining. It's not that we think OKA Corporation Bhd is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that being said, if you're still considering OKA Corporation Bhd as an investment, you'll find it beneficial to know what risks this stock is facing. To help with this, we've discovered 3 warning signs for OKA Corporation Bhd (1 is a bit concerning!) that you ought to be aware of before buying the shares.

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.