U.S. Markets open in 6 hrs 50 mins

We Wouldn't Be Too Quick To Buy APAC Realty Limited (SGX:CLN) Before It Goes Ex-Dividend

Simply Wall St

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see APAC Realty Limited (SGX:CLN) is about to trade ex-dividend in the next 4 days. You can purchase shares before the 28th of August in order to receive the dividend, which the company will pay on the 9th of September.

APAC Realty's upcoming dividend is S$0.0075 a share, following on from the last 12 months, when the company distributed a total of S$0.05 per share to shareholders. Based on the last year's worth of payments, APAC Realty has a trailing yield of 9.8% on the current stock price of SGD0.51. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether APAC Realty can afford its dividend, and if the dividend could grow.

See our latest analysis for APAC Realty

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. APAC Realty paid out 73% 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. APAC Realty paid out more free cash flow than it generated - 174%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

APAC Realty paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to APAC Realty's ability to maintain its dividend.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

SGX:CLN Historical Dividend Yield, August 23rd 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 fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at APAC Realty, with earnings per share up 2.4% on average over the last five years. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Given that APAC Realty has only been paying a dividend for a year, there's not much of a past history to draw insight from.

Final Takeaway

From a dividend perspective, should investors buy or avoid APAC Realty? Earnings per share have grown somewhat, although APAC Realty paid out over half its profits and the dividend was not well covered by free cash flow. It's not that we think APAC Realty is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Wondering what the future holds for APAC Realty? See what the four analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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.