Spindex Industries (SGX:564) Will Pay A Smaller Dividend Than Last Year

Spindex Industries Limited's (SGX:564) dividend is being reduced from last year's payment covering the same period to SGD0.035 on the 18th of November. Based on this payment, the dividend yield will be 3.0%, which is lower than the average for the industry.

See our latest analysis for Spindex Industries

Spindex Industries' Dividend Is Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Spindex Industries is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Over the next year, EPS could expand by 4.1% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 24% by next year, which is in a pretty sustainable range.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2012, the annual payment back then was SGD0.018, compared to the most recent full-year payment of SGD0.035. This means that it has been growing its distributions at 6.9% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Spindex Industries might have put its house in order since then, but we remain cautious.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. However, Spindex Industries has only grown its earnings per share at 4.1% per annum over the past five years. While growth may be thin on the ground, Spindex Industries could always pay out a higher proportion of earnings to increase shareholder returns.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While Spindex Industries is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Spindex Industries has 3 warning signs (and 1 which is significant) we think you should know about. Is Spindex Industries not quite the opportunity you were looking for? Why not check out our selection of top 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.