Keppel's (SGX:BN4) Shareholders Will Receive A Bigger Dividend Than Last Year

Keppel Ltd. (SGX:BN4) has announced that it will be increasing its dividend from last year's comparable payment on the 8th of May to SGD0.19. This will take the annual payment to 4.9% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Keppel

Keppel'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, Keppel'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 31.6% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 73% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the annual payment back then was SGD0.37, compared to the most recent full-year payment of SGD0.34. The dividend has shrunk at a rate of less than 1% a year over this period. A company that decreases its dividend over time generally isn't what we are looking for.

Keppel May Find It Hard To Grow The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. However, Keppel's EPS was effectively flat over the past five years, which could stop the company from paying more every year.

Keppel's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Keppel's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Keppel is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 3 warning signs for Keppel you should be aware of, and 1 of them is a bit unpleasant. 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.