Haw Par (SGX:H02) Is Paying Out A Larger Dividend Than Last Year

Haw Par Corporation Limited (SGX:H02) has announced that it will be increasing its periodic dividend on the 21st of May to SGD1.20, which will be 500% higher than last year's comparable payment amount of SGD0.20. This takes the dividend yield to 3.1%, which shareholders will be pleased with.

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Estimates Indicate Haw Par's Could Struggle to Maintain Dividend Payments In The Future

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, Haw Par was paying only paying out a fraction of earnings, but the payment was a massive 176% of cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

EPS is set to grow by 4.6% over the next year if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could reach 139%, which probably can't continue without starting to put some pressure on the balance sheet.

View our latest analysis for Haw Par

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2015, the dividend has gone from SGD0.20 total annually to SGD0.40. This works out to be a compound annual growth rate (CAGR) of approximately 7.2% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. However, Haw Par has only grown its earnings per share at 4.6% per annum over the past five years. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Haw Par will make a great income stock. While Haw Par is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Haw Par that investors should know about before committing capital to this stock. 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.