Why You Might Be Interested In BRC Asia Limited (SGX:BEC) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see BRC Asia Limited (SGX:BEC) is about to trade ex-dividend in the next three days. If you purchase the stock on or after the 12th of March, you won't be eligible to receive this dividend, when it is paid on the 26th of March.

BRC Asia's next dividend payment will be S$0.06 per share. Last year, in total, the company distributed S$0.06 to shareholders. Based on the last year's worth of payments, BRC Asia has a trailing yield of 3.8% on the current stock price of SGD1.58. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether BRC Asia has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for BRC Asia

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. BRC Asia paid out just 23% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 9.8% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that BRC Asia's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's not encouraging to see that BRC Asia's earnings are effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. Growth has been anaemic. Yet with more than 75% of its earnings being kept in the business, there is ample room to reinvest in growth or lift the payout ratio - either of which could increase the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, BRC Asia has lifted its dividend by approximately 4.1% a year on average.

Final Takeaway

From a dividend perspective, should investors buy or avoid BRC Asia? The company has barely grown earnings per share over this time, but at least it's paying out a decently low percentage of its earnings and cashflow as dividends. This could suggest management is reinvesting in future growth opportunities. Generally we like to see both low payout ratios and strong earnings per share growth, but BRC Asia is halfway there. Overall we think this is an attractive combination and worthy of further research.

While it's tempting to invest in BRC Asia for the dividends alone, you should always be mindful of the risks involved. For example - BRC Asia has 4 warning signs we think you should be aware of.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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