APAC Realty's (SGX:CLN) Dividend Will Be Increased To S$0.04

APAC Realty Limited (SGX:CLN) will increase its dividend on the 10th of May to S$0.04, which is 129% higher than last year. This will take the annual payment from 9.9% to 14% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for APAC Realty

APAC Realty Is Paying Out More Than It Is Earning

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, APAC Realty's dividend made up quite a large proportion of earnings but only 53% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

EPS is set to fall by 27.6% over the next 12 months. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 171%, which is definitely a bit high to be sustainable going forward.

APAC Realty's Dividend Has Lacked Consistency

Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. The dividend has gone from S$0.02 in 2018 to the most recent annual payment of S$0.075. This implies that the company grew its distributions at a yearly rate of about 39% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

APAC Realty's Dividend Might Lack Growth

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that APAC Realty has grown earnings per share at 14% per year over the past five years. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think APAC Realty's payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, APAC Realty has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about. Is APAC Realty not quite the opportunity you were looking for? Why not check out 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.