To The Moon

Oversea-Chinese Banking Corporation Limited's$OVERSEA-CHINESE BANKING CORP(O39.SI)$ dividend will be increasing to S$0.28 on 20th of May. This makes the dividend yield about the same as the industry average at 4.5%. We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Before making this announcement, Oversea-Chinese Banking was earning enough to cover the dividend, but it wasn't generating any free cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend. Over the next year, EPS is forecast to expand by 12.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 46%, which is in the range that makes us comfortable with the sustainability of the dividend. Dividend Volatility The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the first annual payment was S$0.30, compared to the most recent full-year payment of S$0.56. This means that it has been growing its distributions at 6.4% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Oversea-Chinese Banking might have put its house in order since then, but we remain cautious. The Dividend Has Growth Potential 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. It's encouraging to see Oversea-Chinese Banking has been growing its earnings per share at 5.6% 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. In Summary Overall, we always like to see the dividend being raised, but we don't think Oversea-Chinese Banking will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks. Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. To that end, Oversea-Chinese Banking has 2 warning signs (and 1 which is concerning) we think you should know about. source: Simply Wall St