Delfi Limited's (SGX:P34) dividend will be increasing to S$0.021 on 13th of May. This takes the dividend yield from 4.2% to 5.0%, which shareholders will be pleased with.
Delfi's Dividend Is Well Covered By Earnings
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last dividend was quite easily covered by Delfi's earnings. This means that a large portion of its earnings are being retained to grow the business.
Looking forward, earnings per share is forecast to fall by 8.0% over the next year. However, if the dividend continues along recent trends, we estimate the payout ratio could reach 89%, meaning that most of the company's earnings are being paid out to shareholders.
The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. The dividend has gone from US$0.037 in 2012 to the most recent annual payment of US$0.024. Doing the maths, this is a decline of about 4.5% per year. A company that decreases its dividend over time generally isn't what we are looking for.
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 2.3% a year for the past five years, which isn't massive but still better than seeing them shrink. The company has been growing at a pretty soft 2.3% per annum, and is paying out quite a lot of its earnings to shareholders. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.
Overall, this is a reasonable dividend, and it being raised is an added bonus. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Delfi that investors should take into consideration. Is Delfi not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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