It looks like Sheng Siong Group Ltd (SGX:OV8) is about to go ex-dividend in the next 4 days. You will need to purchase shares before the 14th of August to 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, and in the last 12 months, the company paid a total of S$0.035 per share. Calculating the last year’s worth of payments shows that Sheng Siong Group has a trailing yield of 3.0% on the current share price of SGD1.18. We love seeing companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our golden goose! That’s why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Sheng Siong Group paid out more than half (72%) 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 76% of its free cash flow as dividends, which is within usual limits but will limit the company’s ability to lift the dividend if there’s no growth.
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?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. 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 12% per annum over the last five years. The company paid out most of its earnings as dividends over the last year, even though business is booming and earnings per share are growing rapidly. Higher earnings generally bode well for growing dividends, although with seemingly strong growth prospects we’d wonder why management are not reinvesting more in the business.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. In the last 7 years, 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.
The Bottom Line
Has Sheng Siong Group got what it takes to maintain its dividend payments? It’s good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully 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. In summary, it’s hard to get excited about Sheng Siong Group from a dividend perspective.
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 .
If you’re in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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