The board of Fraser and Neave, Limited (SGX:F99) has announced that it will pay a dividend on the 16th of February, with investors receiving SGD0.04 per share. Based on this payment, the dividend yield will be 4.7%, which is fairly typical for the industry.
Check out our latest analysis for Fraser and Neave
Fraser and Neave's Dividend Is Well Covered By Earnings
Solid dividend yields are great, but they only really help us if the payment is sustainable. Based on the last dividend, Fraser and Neave is earning enough to cover the payment, but then it makes up 290% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.
Looking forward, earnings per share could rise by 6.5% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 55% by next year, which we think can be pretty sustainable going forward.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the annual payment back then was SGD0.18, compared to the most recent full-year payment of SGD0.05. The dividend has fallen 72% over that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.
We Could See Fraser and Neave's Dividend Growing
Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. We are encouraged to see that Fraser and Neave has grown earnings per share at 6.5% per year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.
In Summary
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 2 warning signs for Fraser and Neave (1 makes us a bit uncomfortable!) that you should be aware of before investing. Is Fraser and Neave not quite the opportunity you were looking for? Why not check out 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.
About SGX:F99
Fraser and Neave
Engages in the food and beverage, and publishing and printing businesses in Singapore, Malaysia, Thailand, Vietnam, and internationally.
Proven track record with adequate balance sheet.