Sheng Siong Group (SGX:OV8) Could Be A Buy For Its Upcoming Dividend

It looks like Sheng Siong Group Ltd (SGX:OV8) is about to go ex-dividend in the next couple of days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase Sheng Siong Group's shares on or after the 3rd of May, you won't be eligible to receive the dividend, when it is paid on the 17th of May.

The company's next dividend payment will be S$0.032 per share, on the back of last year when the company paid a total of S$0.062 to shareholders. Based on the last year's worth of payments, Sheng Siong Group stock has a trailing yield of around 4.0% on the current share price of S$1.55. If you buy this business for its dividend, you should have an idea of whether Sheng Siong Group's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Sheng Siong Group

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Sheng Siong Group paid out 69% of its earnings to investors last year, a normal payout level for most businesses. 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 distributed 49% of its free cash flow as dividends, a comfortable payout level for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Sheng Siong Group's earnings per share have risen 14% per annum over the last five years. Sheng Siong Group has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Sheng Siong Group has lifted its dividend by approximately 7.8% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Should investors buy Sheng Siong Group for the upcoming dividend? We like Sheng Siong Group's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. Sheng Siong Group looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

In light of that, while Sheng Siong Group has an appealing dividend, it's worth knowing the risks involved with this stock. To help with this, we've discovered 1 warning sign for Sheng Siong Group that you should be aware of before investing in their shares.

If you're in the market for strong dividend payers, we recommend checking 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.