Olam Group's (SGX:VC2) Dividend Will Be SGD0.04

Olam Group Limited (SGX:VC2) has announced that it will pay a dividend of SGD0.04 per share on the 13th of May. This means the annual payment is 6.1% of the current stock price, which is above the average for the industry.

See our latest analysis for Olam Group

Olam Group Is Paying Out More Than It Is Earning

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, earnings were actually smaller than the dividend, and the company was actually spending more cash than it was making. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.

If the company can't turn things around, EPS could fall by 6.8% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 124%, which could put the dividend in jeopardy if the company's earnings don't improve.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the dividend has gone from SGD0.04 total annually to SGD0.07. This works out to be a compound annual growth rate (CAGR) of approximately 5.8% a year over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

Dividend Growth Is Doubtful

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. In the last five years, Olam Group's earnings per share has shrunk at approximately 6.8% per annum. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

Olam Group's Dividend Doesn't Look Great

To sum up, we don't like when dividends are cut, but in this case the dividend may have been too high to begin with. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. Overall, this doesn't get us very excited from an income standpoint.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 3 warning signs for Olam Group (2 can't be ignored!) that you should be aware of before investing. Is Olam Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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