Oversea-Chinese Banking's (SGX:O39) Upcoming Dividend Will Be Larger Than Last Year's

The board of Oversea-Chinese Banking Corporation Limited (SGX:O39) has announced that it will be paying its dividend of SGD0.28 on the 25th of August, an increased payment from last year's comparable dividend. This makes the dividend yield about the same as the industry average at 4.6%.

Check out our latest analysis for Oversea-Chinese Banking

Oversea-Chinese Banking's Earnings Will Easily Cover The Distributions

We aren't too impressed by dividend yields unless they can be sustained over time.

Oversea-Chinese Banking has a long history of paying out dividends, with its current track record at a minimum of 10 years. Past distributions do not necessarily guarantee future ones, but Oversea-Chinese Banking's payout ratio of 50% is a good sign as this means that earnings decently cover dividends.

Over the next 3 years, EPS is forecast to expand by 36.9%. Analysts forecast the future payout ratio could be 47% over the same time horizon, which is a number we think the company can maintain.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the dividend has gone from SGD0.30 total annually to SGD0.56. This works out to be a compound annual growth rate (CAGR) of approximately 6.4% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend Has Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Oversea-Chinese Banking has seen EPS rising for the last five years, at 5.3% per annum. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.

Our Thoughts On Oversea-Chinese Banking's Dividend

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

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. To that end, Oversea-Chinese Banking has 2 warning signs (and 1 which can't be ignored) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.