New Hoong Fatt Holdings Berhad (KLSE:NHFATT) is about to trade ex-dividend in the next 3 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 New Hoong Fatt Holdings Berhad's shares on or after the 10th of September will not receive the dividend, which will be paid on the 30th of September.
The company's next dividend payment will be RM00.01 per share, on the back of last year when the company paid a total of RM0.075 to shareholders. Calculating the last year's worth of payments shows that New Hoong Fatt Holdings Berhad has a trailing yield of 5.8% on the current share price of RM01.30. 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.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. New Hoong Fatt Holdings Berhad paid out 51% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether New Hoong Fatt Holdings Berhad generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 33% 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.
View our latest analysis for New Hoong Fatt Holdings Berhad
Click here to see how much of its profit New Hoong Fatt Holdings 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, New Hoong Fatt Holdings Berhad's earnings per share have been growing at 13% a year for the past five years. New Hoong Fatt Holdings Berhad is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. New Hoong Fatt Holdings Berhad has delivered 5.1% dividend growth per year on average over the past 10 years. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
Final Takeaway
Has New Hoong Fatt Holdings Berhad got what it takes to maintain its dividend payments? New Hoong Fatt Holdings Berhad's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. There's a lot to like about New Hoong Fatt Holdings Berhad, and we would prioritise taking a closer look at it.
While it's tempting to invest in New Hoong Fatt Holdings Berhad for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 2 warning signs for New Hoong Fatt Holdings Berhad you should know about.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.