New Hoong Fatt Holdings Berhad (KLSE:NHFATT) stock is about to trade ex-dividend in three days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase New Hoong Fatt Holdings Berhad's shares on or after the 9th of December, you won't be eligible to receive the dividend, when it is paid on the 23rd of December.

The company's next dividend payment will be RM0.03 per share, on the back of last year when the company paid a total of RM0.09 to shareholders. Last year's total dividend payments show that New Hoong Fatt Holdings Berhad has a trailing yield of 3.2% on the current share price of MYR2.8. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether New Hoong Fatt Holdings Berhad has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for New Hoong Fatt Holdings Berhad

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 just 22% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. The good news is it paid out just 23% of its free cash flow in the last year.

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 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. With that in mind, we're encouraged by the steady growth at New Hoong Fatt Holdings Berhad, with earnings per share up 2.6% on average over the last five years. Growth has been anaemic. Yet with more than 75% of its earnings being kept in the business, there is ample room to reinvest in growth or lift the payout ratio - either of which could increase the dividend.