It looks like Formosa Prosonic Industries Berhad (KLSE:FPI) 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase Formosa Prosonic Industries Berhad's shares on or after the 6th of April will not receive the dividend, which will be paid on the 28th of April.

The company's upcoming dividend is RM0.21 a share, following on from the last 12 months, when the company distributed a total of RM0.21 per share to shareholders. Based on the last year's worth of payments, Formosa Prosonic Industries Berhad has a trailing yield of 7.1% on the current stock price of MYR2.95. 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 Formosa Prosonic Industries Berhad can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Formosa Prosonic Industries Berhad

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. Formosa Prosonic Industries Berhad paid out more than half (51%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 37% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Formosa Prosonic Industries Berhad'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 how much of its profit Formosa Prosonic Industries Berhad paid out over the last 12 months.

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. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Formosa Prosonic Industries Berhad's earnings have been skyrocketing, up 20% per annum for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.