DFI Retail Group Holdings (SGX:D01) Is Reducing Its Dividend To $0.01

DFI Retail Group Holdings Limited (SGX:D01) has announced that on 12th of October, it will be paying a dividend of$0.01, which a reduction from last year's comparable dividend. This means that the annual payment is 2.7% of the current stock price, which is lower than what the rest of the industry is paying.

View our latest analysis for DFI Retail Group Holdings

DFI Retail Group Holdings' Dividend Is Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, the company was paying out 355% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 16%. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Analysts expect a massive rise in earnings per share in the next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 34% which is fairly sustainable.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of $0.21 in 2012 to the most recent total annual payment of $0.075. Doing the maths, this is a decline of about 9.8% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth Potential Is Shaky

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Over the past five years, it looks as though DFI Retail Group Holdings' EPS has declined at around 43% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

The Dividend Could Prove To Be Unreliable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. This company is not in the top tier of income providing stocks.

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. Case in point: We've spotted 4 warning signs for DFI Retail Group Holdings (of which 1 is significant!) 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.