BRC Asia's (SGX:BEC) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of BRC Asia Limited (SGX:BEC) has announced that it will be increasing its dividend on the 18th of March to S$0.08. This will take the dividend yield from 7.6% to 7.6%, providing a nice boost to shareholder returns.

Check out our latest analysis for BRC Asia

BRC Asia's Earnings Easily Cover the Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, BRC Asia's earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Looking forward, earnings per share is forecast to rise by 0.08% over the next year. If the dividend continues on this path, the payout ratio could be 73% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The first annual payment during the last 10 years was S$0.04 in 2012, and the most recent fiscal year payment was S$0.12. This implies that the company grew its distributions at a yearly rate of about 12% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. BRC Asia has seen EPS rising for the last five years, at 31% per annum. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that BRC Asia could prove to be a strong dividend payer.

The company has also been raising capital by issuing stock equal to 18% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think BRC Asia's payments are rock solid. While BRC Asia is earning enough to cover the payments, the cash flows are lacking. We don't think BRC Asia is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 4 warning signs for BRC Asia (2 can't be ignored!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our curated list 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.