It Might Not Be A Great Idea To Buy Low Keng Huat (Singapore) Limited (SGX:F1E) For Its Next Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Low Keng Huat (Singapore) Limited (SGX:F1E) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Meaning, you will need to purchase Low Keng Huat (Singapore)'s shares before the 7th of June to receive the dividend, which will be paid on the 21st of June.

The company's next dividend payment will be S$0.015 per share. Last year, in total, the company distributed S$0.015 to shareholders. Calculating the last year's worth of payments shows that Low Keng Huat (Singapore) has a trailing yield of 4.8% on the current share price of S$0.31. If you buy this business for its dividend, you should have an idea of whether Low Keng Huat (Singapore)'s dividend is reliable and sustainable. So we need to investigate whether Low Keng Huat (Singapore) can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Low Keng Huat (Singapore)

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Low Keng Huat (Singapore) reported a loss last year, so it's not great to see that it has continued paying a dividend. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Low Keng Huat (Singapore) didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. What's good is that dividends were well covered by free cash flow, with the company paying out 5.0% of its cash flow last year.

Click here to see how much of its profit Low Keng Huat (Singapore) paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. Low Keng Huat (Singapore) reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Low Keng Huat (Singapore) has seen its dividend decline 6.7% per annum on average over the past 10 years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

Get our latest analysis on Low Keng Huat (Singapore)'s balance sheet health here.

To Sum It Up

From a dividend perspective, should investors buy or avoid Low Keng Huat (Singapore)? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." It's not that we think Low Keng Huat (Singapore) is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Although, if you're still interested in Low Keng Huat (Singapore) and want to know more, you'll find it very useful to know what risks this stock faces. For example, Low Keng Huat (Singapore) has 3 warning signs (and 2 which are potentially serious) we think you should know about.

A common investing mistake is buying the first interesting stock you see. Here you can find a full 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.