We Wouldn't Be Too Quick To Buy Fraser and Neave, Limited (SGX:F99) Before It Goes Ex-Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Fraser and Neave, Limited (SGX:F99) is about to go ex-dividend in just 3 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase Fraser and Neave's shares before the 23rd of January in order to be eligible for the dividend, which will be paid on the 14th of February.

The company's next dividend payment will be S$0.04 per share, and in the last 12 months, the company paid a total of S$0.055 per share. Last year's total dividend payments show that Fraser and Neave has a trailing yield of 4.0% on the current share price of S$1.36. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Fraser and Neave has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Fraser and Neave

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fraser and Neave is paying out an acceptable 53% of its profit, a common payout level among most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year, it paid out more than three-quarters (78%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's positive to see that Fraser and Neave's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit Fraser and Neave paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're not enthused to see that Fraser and Neave's earnings per share have remained effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Fraser and Neave has seen its dividend decline 8.9% per annum on average over the past 10 years, which is not great to see.

Final Takeaway

Should investors buy Fraser and Neave for the upcoming dividend? While earnings per share are flat, at least Fraser and Neave has not committed itself to an unsustainable dividend, with its earnings and cashflow payout ratios within reasonable bounds. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

Although, if you're still interested in Fraser and Neave and want to know more, you'll find it very useful to know what risks this stock faces. To help with this, we've discovered 2 warning signs for Fraser and Neave (1 doesn't sit too well with us!) that you ought to be aware of before buying the shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full 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.