It looks like BP Plastics Holding Bhd. (KLSE:BPPLAS) is about to go ex-dividend in the next three 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase BP Plastics Holding Bhd's shares on or after the 22nd of June will not receive the dividend, which will be paid on the 7th of July.
The company's upcoming dividend is RM0.015 a share, following on from the last 12 months, when the company distributed a total of RM0.055 per share to shareholders. Based on the last year's worth of payments, BP Plastics Holding Bhd stock has a trailing yield of around 4.4% on the current share price of MYR1.25. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether BP Plastics Holding Bhd can afford its dividend, and if the dividend could grow.
Check out our latest analysis for BP Plastics Holding Bhd
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. That's why it's good to see BP Plastics Holding Bhd paying out a modest 49% of its earnings. A useful secondary check can be to evaluate whether BP Plastics Holding Bhd generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 29% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that BP Plastics Holding Bhd's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see BP Plastics Holding Bhd's earnings per share have risen 20% per annum over the last five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.