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) is reducing its dividend to S$0.02 on the 24th of June. However, the dividend yield of 4.2% is still a decent boost to shareholder returns.

View our latest analysis for Low Keng Huat (Singapore)

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

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Low Keng Huat (Singapore)'s dividend made up quite a large proportion of earnings but only 19% of free cash flows. This leaves plenty of cash for reinvestment into the business.

EPS is set to fall by 17.9% over the next 12 months if recent trends continue. If recent patterns in the dividend continue, we could see the payout ratio reaching 78% in the next 12 months which is on the higher end of the range we would say is sustainable.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2012, the dividend has gone from S$0.04 to S$0.02. Doing the maths, this is a decline of about 6.7% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth Potential Is Shaky

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Over the past five years, it looks as though Low Keng Huat (Singapore)'s EPS has declined at around 18% a year. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

In Summary

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 4 warning signs for Low Keng Huat (Singapore) (of which 1 doesn't sit too well with us!) you should know about. Is Low Keng Huat (Singapore) 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.