The board of Oriental Food Industries Holdings Berhad (KLSE:OFI) has announced that it will be increasing its dividend by 100% on the 10th of January to MYR0.01, up from last year's comparable payment of MYR0.005. Despite this raise, the dividend yield of 2.2% is only a modest boost to shareholder returns.
Oriental Food Industries Holdings Berhad's Earnings Easily Cover The Distributions
If it is predictable over a long period, even low dividend yields can be attractive. However, prior to this announcement, Oriental Food Industries Holdings Berhad's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.
If the trend of the last few years continues, EPS will grow by 8.3% over the next 12 months. If the dividend continues on this path, the payout ratio could be 30% by next year, which we think can be pretty sustainable going forward.
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the annual payment back then was MYR0.02, compared to the most recent full-year payment of MYR0.028. This means that it has been growing its distributions at 3.4% per annum over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.
Oriental Food Industries Holdings Berhad Could Grow Its Dividend
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Oriental Food Industries Holdings Berhad has grown earnings per share at 8.3% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.
Oriental Food Industries Holdings Berhad Looks Like A Great Dividend Stock
Overall, a dividend increase is always good, and we think that Oriental Food Industries Holdings Berhad is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for Oriental Food Industries Holdings Berhad that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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