Borouge's (ADX:BOROUGE) Dividend Will Be $0.079

Borouge plc (ADX:BOROUGE) has announced that it will pay a dividend of $0.079 per share on the 1st of January. This makes the dividend yield 6.5%, which will augment investor returns quite nicely.

View our latest analysis for Borouge

Borouge Is Paying Out More Than It Is Earning

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before this announcement, Borouge was paying out 87% of earnings, but a comparatively small 64% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

Earnings per share is forecast to rise by 0.6% over the next year. If the dividend continues on its recent course, the company could be paying out several times what it earns in the next 12 months, which could start applying pressure to the balance sheet.

Borouge Is Still Building Its Track Record

The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. Since 2022, the dividend has gone from $0.0216 total annually to $0.0432. This means that it has been growing its distributions at 41% per annum over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

Borouge's Dividend Might Lack Growth

Investors could be attracted to the stock based on the quality of its payment history. Borouge's earnings per share is up 51% on last year. We're glad to see EPS up on last year, but we're conscious that growth rates typically slow as companies increase in size. Earnings per share is growing nicely, but the company is paying out most of its earnings as dividends. This might be sustainable, but we wonder why Borouge is not retaining those earnings to reinvest in growth. We do note though, one year is too short a time to be drawing strong conclusions about a company's future prospects.

Our Thoughts On Borouge's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Borouge's payments, as there could be some issues with sustaining them into the future. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think Borouge is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 2 warning signs for Borouge that you should be aware of before investing. Is Borouge not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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