Fraser and Neave (SGX:F99) Is Increasing Its Dividend To SGD0.04

Fraser and Neave, Limited (SGX:F99) has announced that it will be increasing its dividend from last year's comparable payment on the 16th of February to SGD0.04. This takes the annual payment to 5.1% of the current stock price, which is about average for the industry.

Check out our latest analysis for Fraser and Neave

Fraser and Neave's Earnings Easily Cover The Distributions

We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, Fraser and Neave was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The business is earning enough to make the dividend feasible, but the cash payout ratio of 77% indicates it is more focused on returning cash to shareholders than growing the business.

Looking forward, earnings per share could rise by 1.4% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 52% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the dividend has gone from SGD0.155 total annually to SGD0.055. The dividend has shrunk at around 9.8% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.

Fraser and Neave May Find It Hard To Grow The Dividend

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Although it's important to note that Fraser and Neave's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. Fraser and Neave is struggling to find viable investments, so it is returning more to shareholders. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

Our Thoughts On Fraser and Neave's Dividend

Overall, we always like to see the dividend being raised, but we don't think Fraser and Neave will make a great income stock. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Fraser and Neave has 2 warning signs (and 1 which is concerning) we think 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.