Stamford Tyres Corporation Limited (SGX:S29) has announced that it will pay a dividend of SGD0.015 per share on the 25th of September. This means that the annual payment will be 7.3% of the current stock price, which is in line with the average for the industry.
View our latest analysis for Stamford Tyres
Stamford Tyres' Payment Has Solid Earnings Coverage
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, Stamford Tyres' dividend made up quite a large proportion of earnings but only 28% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.
If the company can't turn things around, EPS could fall by 4.5% over the next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 88% in the next 12 months which is on the higher end of the range we would say is sustainable.
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The last annual payment of SGD0.015 was flat on the annual payment from10 years ago. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.
Stamford Tyres May Find It Hard To Grow The Dividend
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. In the last five years, Stamford Tyres' earnings per share has shrunk at approximately 4.5% per annum. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.
In Summary
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Stamford Tyres' payments, as there could be some issues with sustaining them into the future. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would be a touch cautious of relying on this stock primarily for the dividend income.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Stamford Tyres has 3 warning signs (and 1 which is significant) we think you should know about. 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.
About SGX:S29
Stamford Tyres
An investment holding company, engages in the wholesale and retail of tires and wheels in Southeast Asia, North Asia, Africa, and internationally.
Slight with acceptable track record.
