First Resources (SGX:EB5) Is Increasing Its Dividend To $0.12

First Resources Limited (SGX:EB5) has announced that it will be increasing its dividend from last year's comparable payment on the 15th of May to $0.12. This takes the dividend yield to 8.9%, which shareholders will be pleased with.

See our latest analysis for First Resources

First Resources 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, First Resources was quite comfortably earning enough to cover the dividend. This indicates that quite a large proportion of earnings is being invested back into the business.

EPS is set to fall by 36.2% over the next 12 months. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 135%, which is definitely a bit high to be sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was $0.0312 in 2013, and the most recent fiscal year payment was $0.107. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. First Resources has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that First Resources has grown earnings per share at 19% per year over the past five years. The company is paying a reasonable amount of earnings to shareholders, and is growing earnings at a decent rate so we think it could be a decent dividend stock.

We Really Like First Resources' Dividend

Overall, a dividend increase is always good, and we think that First Resources is a strong income stock thanks to its track record and growing earnings. The earnings easily cover the company's distributions, and the company is generating plenty of cash. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. All of these factors considered, we think this has solid potential as a dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, First Resources has 2 warning signs (and 1 which is concerning) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.