First Resources (SGX:EB5) Has Announced A Dividend Of $0.037

The board of First Resources Limited (SGX:EB5) has announced that it will pay a dividend of $0.037 per share on the 16th of May. This means that the dividend yield is 4.3%, which is a bit low when comparing to other companies in the industry.

See our latest analysis for First Resources

First Resources' Payment Has Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. Based on the last payment, First Resources' earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Over the next year, EPS is forecast to expand by 20.7%. If the dividend continues on this path, the payout ratio could be 62% by next year, which we think can be pretty sustainable going forward.

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 $0.0312 in 2014 to the most recent total annual payment of $0.0454. This implies that the company grew its distributions at a yearly rate of about 3.8% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Earnings have grown at around 4.3% a year for the past five years, which isn't massive but still better than seeing them shrink. Growth of 4.3% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This could mean the dividend doesn't have the growth potential we look for going into the future.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for First Resources that you should be aware of before investing. 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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