Low Keng Huat (Singapore) (SGX:F1E) Has Announced That Its Dividend Will Be Reduced To S$0.02

Low Keng Huat (Singapore) Limited (SGX:F1E) has announced it will be reducing its dividend payable on the 24th of June to S$0.02. The yield is still above the industry average at 4.3%.

View our latest analysis for Low Keng Huat (Singapore)

Low Keng Huat (Singapore)'s Earnings Easily Cover the Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Low Keng Huat (Singapore) was paying out 84% of earnings and more than 75% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but we don't think that there are necessarily signs that the dividend might be unsustainable.

EPS is set to fall by 17.0% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could be 73%, which we consider to be quite comfortable, even though the current levels are slightly more elevated.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The first annual payment during the last 10 years was S$0.04 in 2012, and the most recent fiscal year payment was S$0.02. The dividend has shrunk at around 6.7% a year during that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend Has Limited Growth Potential

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Earnings per share has been sinking by 17% over the last five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

Low Keng Huat (Singapore)'s Dividend Doesn't Look Sustainable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The payments are bit high to be considered sustainable, and the track record isn't the best. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 4 warning signs for Low Keng Huat (Singapore) you should be aware of, and 1 of them is concerning. 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.