The board of Haw Par Corporation Limited (SGX:H02) has announced that it will pay a dividend of S$0.15 per share on the 13th of September. Based on this payment, the dividend yield will be 2.2%, which is fairly typical for the industry.
Haw Par Is Paying Out More Than It Is Earning
We aren't too impressed by dividend yields unless they can be sustained over time. At the time of the last dividend payment, Haw Par was paying out a very large proportion of what it was earning and 948% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.
Looking forward, EPS could fall by 7.0% if the company can't turn things around from the last few years. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 95%, which is definitely a bit high to be sustainable going forward.
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2011, the dividend has gone from S$0.18 to S$0.30. This implies that the company grew its distributions at a yearly rate of about 5.1% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Haw Par might have put its house in order since then, but we remain cautious.
Dividend Growth Is Doubtful
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. Haw Par has seen earnings per share falling at 7.0% per year over the last five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.
Haw Par's Dividend Doesn't Look Sustainable
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The track record isn't great, and the payments are a bit high to be considered sustainable. 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. We have also put together a list of global stocks with a solid dividend.
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