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It Might Not Be A Great Idea To Buy Willas-Array Electronics (Holdings) Limited (SGX:BDR) For Its Next Dividend

Simply Wall St

It looks like Willas-Array Electronics (Holdings) Limited (SGX:BDR) is about to go ex-dividend in the next 4 days. If you purchase the stock on or after the 7th of August, you won't be eligible to receive this dividend, when it is paid on the 26th of August.

Willas-Array Electronics (Holdings)'s upcoming dividend is HK$0.20 a share, following on from the last 12 months, when the company distributed a total of HK$0.20 per share to shareholders. Looking at the last 12 months of distributions, Willas-Array Electronics (Holdings) has a trailing yield of approximately 6.1% on its current stock price of SGD0.575. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Willas-Array Electronics (Holdings) can afford its dividend, and if the dividend could grow.

View our latest analysis for Willas-Array Electronics (Holdings)

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Willas-Array Electronics (Holdings) paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Over the past year it paid out 117% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Click here to see how much of its profit Willas-Array Electronics (Holdings) paid out over the last 12 months.

SGX:BDR Historical Dividend Yield, August 2nd 2019

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Willas-Array Electronics (Holdings) was unprofitable last year, but at least the general trend suggests its earnings have been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Willas-Array Electronics (Holdings) has seen its dividend decline 8.6% per annum on average over the past 9 years, which is not great to see.

Remember, you can always get a snapshot of Willas-Array Electronics (Holdings)'s financial health, by checking our visualisation of its financial health, here.

The Bottom Line

Should investors buy Willas-Array Electronics (Holdings) for the upcoming dividend? First, it's not great to see the company paying a dividend despite being loss-making over the last year. Second, the dividend was not well covered by cash flow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

Want to learn more about Willas-Array Electronics (Holdings)? Here's a visualisation of its historical rate of revenue and earnings growth.

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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.