Borouge (ADX:BOROUGE) Is Due To Pay A Dividend Of $0.0794

Borouge plc (ADX:BOROUGE) has announced that it will pay a dividend of $0.0794 per share on the 28th of April. This makes the dividend yield 6.4%, which will augment investor returns quite nicely.

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Borouge's Future Dividends May Potentially Be At Risk

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, the company was paying out 109% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 69%. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

Over the next year, EPS is forecast to expand by 27.9%. Assuming the dividend continues along recent trends, we think the payout ratio could get very high, which probably can't continue without starting to put some pressure on the balance sheet.

See our latest analysis for Borouge

Borouge Doesn't Have A Long Payment History

The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. The annual payment during the last 3 years was $0.0216 in 2022, and the most recent fiscal year payment was $0.0432. This works out to be a compound annual growth rate (CAGR) of approximately 26% a year over that time. Borouge has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

Borouge's Dividend Might Lack Growth

Investors could be attracted to the stock based on the quality of its payment history. Borouge has seen EPS grow by 24% in 12 months. We always like to see growing earnings, and if the trend continues it would be a very positive sign for the dividend potential. Strong earnings is nice to see, but unless this can be sustained on minimal reinvestment of profits, we would question whether dividends will follow suit. Any one year of performance can be misleading for a variety of reasons, so we wouldn't like to form any strong conclusions based on these numbers alone.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 3 warning signs for Borouge (of which 1 makes us a bit uncomfortable!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.