EnGro Corporation Limited (SGX:S44) Looks Interesting, And It's About To Pay A Dividend

By
Simply Wall St
Published
May 19, 2021
SGX:S44
Source: Shutterstock

EnGro Corporation Limited (SGX:S44) is about to trade ex-dividend in the next four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order 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 EnGro's shares before the 24th of May in order to be eligible for the dividend, which will be paid on the 10th of June.

The upcoming dividend for EnGro is S$0.03 per share, increased from last year's total dividends per share of S$0.025. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether EnGro can afford its dividend, and if the dividend could grow.

Check out our latest analysis for EnGro

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. EnGro has a low and conservative payout ratio of just 13% of its income after tax. A useful secondary check can be to evaluate whether EnGro generated enough free cash flow to afford its dividend. It distributed 33% of its free cash flow as dividends, a comfortable payout level for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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

historic-dividend
SGX:S44 Historic Dividend May 19th 2021

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see EnGro has grown its earnings rapidly, up 51% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. EnGro has seen its dividend decline 1.8% per annum on average over the past 10 years, which is not great to see.

To Sum It Up

Has EnGro got what it takes to maintain its dividend payments? EnGro has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. It's a promising combination that should mark this company worthy of closer attention.

While it's tempting to invest in EnGro for the dividends alone, you should always be mindful of the risks involved. For example, we've found 1 warning sign for EnGro that we recommend you consider before investing in the business.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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