It looks like Fima Corporation Berhad (KLSE:FIMACOR) is about to go ex-dividend in the next three days. The ex-dividend date is one business day 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. 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. Thus, you can purchase Fima Corporation Berhad's shares before the 20th of July in order to receive the dividend, which the company will pay on the 4th of August.
The company's next dividend payment will be RM0.075 per share, on the back of last year when the company paid a total of RM0.13 to shareholders. Looking at the last 12 months of distributions, Fima Corporation Berhad has a trailing yield of approximately 6.4% on its current stock price of MYR1.95. If you buy this business for its dividend, you should have an idea of whether Fima Corporation Berhad's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Check out our latest analysis for Fima Corporation 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. Its dividend payout ratio is 82% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be worried about the risk of a drop in earnings. 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. Fima Corporation Berhad paid out more free cash flow than it generated - 161%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
Fima Corporation Berhad does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.
While Fima Corporation Berhad's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Fima Corporation Berhad to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.