Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Far East Holdings Berhad (KLSE:FAREAST) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Far East Holdings Berhad's shares before the 5th of December to receive the dividend, which will be paid on the 23rd of December.
The company's next dividend payment will be RM00.07 per share. Last year, in total, the company distributed RM0.11 to shareholders. Last year's total dividend payments show that Far East Holdings Berhad has a trailing yield of 3.1% on the current share price of RM03.60. If you buy this business for its dividend, you should have an idea of whether Far East Holdings Berhad's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
Check out our latest analysis for Far East Holdings Berhad
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Far East Holdings Berhad's payout ratio is modest, at just 34% of profit. A useful secondary check can be to evaluate whether Far East Holdings Berhad generated enough free cash flow to afford its dividend. Dividends consumed 72% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
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 Far East Holdings Berhad paid out over the last 12 months.
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. It's encouraging to see Far East Holdings Berhad has grown its earnings rapidly, up 31% a year for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Far East Holdings Berhad has increased its dividend at approximately 6.3% a year on average. 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.