Sheng Siong Group Ltd (SGX:OV8) is about to trade ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 14th of August will not receive the dividend, which will be paid on the 27th of August.
Sheng Siong Group's next dividend payment will be S$0.018 per share, on the back of last year when the company paid a total of S$0.035 to shareholders. Looking at the last 12 months of distributions, Sheng Siong Group has a trailing yield of approximately 3.0% on its current stock price of SGD1.18. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Sheng Siong Group has been able to grow its dividends, or if the dividend might be cut.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Sheng Siong Group paid out 72% of its earnings to investors last year, a normal payout level for most businesses. 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. Over the last year, it paid out more than three-quarters (76%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
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 earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Sheng Siong Group's earnings per share have risen 12% per annum over the last five years. It paid out more than three-quarters of its earnings in the last year, even though earnings per share are growing rapidly. We're surprised that management has not elected to reinvest more in the business to accelerate growth further.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 7 years ago, Sheng Siong Group has lifted its dividend by approximately 10% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
To Sum It Up
Has Sheng Siong Group got what it takes to maintain its dividend payments? 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 - 72% and 76% respectively. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.
Curious what other investors think of Sheng Siong Group? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow .
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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