Malaysian Pacific Industries Berhad (KLSE:MPI) Could Be A Buy For Its Upcoming Dividend

Malaysian Pacific Industries Berhad (KLSE:MPI) stock is about to trade ex-dividend in 4 days. Ex-dividend means that investors that purchase the stock on or after the 9th of December will not receive this dividend, which will be paid on the 24th of December.

Malaysian Pacific Industries Berhad's upcoming dividend is RM0.10 a share, following on from the last 12 months, when the company distributed a total of RM0.27 per share to shareholders. Last year's total dividend payments show that Malaysian Pacific Industries Berhad has a trailing yield of 1.0% on the current share price of MYR25.8. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Malaysian Pacific Industries Berhad

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Malaysian Pacific Industries Berhad paid out a comfortable 30% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Thankfully its dividend payments took up just 34% of the free cash flow it generated, which is a comfortable payout ratio.

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?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Malaysian Pacific Industries Berhad, with earnings per share up 9.3% on average over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Malaysian Pacific Industries Berhad has delivered an average of 3.0% per year annual increase in its dividend, based on the past 10 years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

Is Malaysian Pacific Industries Berhad worth buying for its dividend? Earnings per share growth has been growing somewhat, and Malaysian Pacific Industries 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. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Malaysian Pacific Industries Berhad is halfway there. It's a promising combination that should mark this company worthy of closer attention.

In light of that, while Malaysian Pacific Industries Berhad has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 1 warning sign for Malaysian Pacific Industries Berhad that we recommend you consider before investing in the business.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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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