Oversea-Chinese Banking (SGX:O39) Will Pay A Smaller Dividend Than Last Year

Oversea-Chinese Banking Corporation Limited (SGX:O39) is reducing its dividend from last year's comparable payment to SGD0.41 on the 21st of August. The dividend yield will be in the average range for the industry at 5.0%.

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Oversea-Chinese Banking's Dividend Forecasted To Be Well Covered By Earnings

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue.

Oversea-Chinese Banking has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Past distributions do not necessarily guarantee future ones, but Oversea-Chinese Banking's payout ratio of 51% is a good sign as this means that earnings decently cover dividends.

Looking forward, EPS is forecast to rise by 10.9% over the next 3 years. Analysts estimate the future payout ratio will be 54% over the same time period, which is in the range that makes us comfortable with the sustainability of the dividend.

Check out our latest analysis for Oversea-Chinese Banking

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the annual payment back then was SGD0.36, compared to the most recent full-year payment of SGD0.85. This implies that the company grew its distributions at a yearly rate of about 9.0% over that duration. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Oversea-Chinese Banking has grown earnings per share at 13% per year over the past five years. The company is paying a reasonable amount of earnings to shareholders, and is growing earnings at a decent rate so we think it could be a decent dividend stock.

We Really Like Oversea-Chinese Banking's Dividend

Overall, we think that Oversea-Chinese Banking could be a great option for a dividend investment, although we would have preferred if the dividend wasn't cut this year. Reducing the amount it is paying as a dividend can protect the company's balance sheet, keeping the dividend sustainable for longer. All of these factors considered, we think this has solid potential as a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Oversea-Chinese Banking that investors need to be conscious of moving forward. 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.