DBS Group Holdings Ltd (SGX:D05) will increase its dividend on the 22nd of April to S$0.36. The announced payment will take the dividend yield to 3.4%, which is in line with the average for the industry.
DBS Group Holdings' Dividend Is Well Covered By Earnings
While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Before making this announcement, DBS Group Holdings was earning enough to cover the dividend, but it wasn't generating any free cash flows. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.
Looking forward, earnings per share is forecast to rise by 8.8% over the next year. If the dividend continues on this path, the payout ratio could be 47% by next year, which we think can be pretty sustainable going forward.
SGX:D05 Historic Dividend March 24th 2022
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. The first annual payment during the last 10 years was S$0.56 in 2012, and the most recent fiscal year payment was S$1.44. This implies that the company grew its distributions at a yearly rate of about 9.9% over that duration. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.
The Dividend Has Growth Potential
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see DBS Group Holdings has been growing its earnings per share at 9.4% a year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.
Our Thoughts On DBS Group Holdings' Dividend
In summary, while it's always good to see the dividend being raised, we don't think DBS Group Holdings' payments are rock solid. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.$DBS GROUP HOLDINGS LTD(D05.SI)$
source：Simply Wall St
Comments