Readers hoping to buy Sheng Siong Group Ltd$SHENG SIONG GROUP LTD(OV8.SI)$ for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Sheng Siong Group investors that purchase the stock on or after the 9th of May will not receive the dividend, which will be paid on the 20th of May.
The company's upcoming dividend is S$0.031 a share, following on from the last 12 months, when the company distributed a total of S$0.062 per share to shareholders. Based on the last year's worth of payments, Sheng Siong Group stock has a trailing yield of around 4.0% on the current share price of SGD1.54. If you buy this business for its dividend, you should have an idea of whether Sheng Siong Group's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Sheng Siong Group paid out more than half (70%) of its earnings last year, which is a regular payout ratio for most companies. 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. It paid out more than half (68%) of its free cash flow in the past year, which is within an average range for most companies.
It's positive to see that Sheng Siong Group'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.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Sheng Siong Group's earnings per share have risen 17% per annum over the last five years. Sheng Siong Group has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Sheng Siong Group has delivered an average of 13% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
The Bottom Line
From a dividend perspective, should investors buy or avoid Sheng Siong Group? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. That's why we're glad to see Sheng Siong Group's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 70% and 68% respectively. All things considered, we are not particularly enthused about Sheng Siong Group from a dividend perspective.
Source:SimplyWallSt
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