Is It Worth Considering Haw Par Corporation Limited (SGX:H02) For Its Upcoming Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Haw Par Corporation Limited (SGX:H02) is about to trade ex-dividend in the next 4 days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase Haw Par's shares on or after the 5th of May, you won't be eligible to receive the dividend, when it is paid on the 21st of May.

The company's upcoming dividend is S$1.20 a share, following on from the last 12 months, when the company distributed a total of S$0.40 per share to shareholders. Based on the last year's worth of payments, Haw Par stock has a trailing yield of around 3.1% on the current share price of S$12.96. If you buy this business for its dividend, you should have an idea of whether Haw Par's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

We've discovered 1 warning sign about Haw Par. View them for free.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Haw Par paying out a modest 39% of its earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Haw Par paid out more free cash flow than it generated - 176%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

Haw Par does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

While Haw Par's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Haw Par to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

See our latest analysis for Haw Par

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

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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Haw Par, with earnings per share up 4.6% on average over the last five years. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Haw Par has increased its dividend at approximately 7.2% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Should investors buy Haw Par for the upcoming dividend? Haw Par delivered reasonable earnings per share growth in recent times, and paid out less than half its profits and 176% of its cash flow over the last year, which is a mediocre outcome. All things considered, we are not particularly enthused about Haw Par from a dividend perspective.

If you want to look further into Haw Par, it's worth knowing the risks this business faces. In terms of investment risks, we've identified 1 warning sign with Haw Par and understanding them should be part of your investment process.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.