SIA Engineering (SGX:S59) Has Announced That It Will Be Increasing Its Dividend To SGD0.07

The board of SIA Engineering Company Limited (SGX:S59) has announced that it will be paying its dividend of SGD0.07 on the 12th of August, an increased payment from last year's comparable dividend. This makes the dividend yield about the same as the industry average at 2.7%.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that SIA Engineering's stock price has increased by 53% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

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SIA Engineering's Future Dividend Projections Appear Well Covered By Earnings

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. At the time of the last dividend payment, SIA Engineering was paying out a very large proportion of what it was earning and 98% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

Looking forward, earnings per share is forecast to rise by 32.2% over the next year. If the dividend continues on this path, the payout ratio could be 50% by next year, which we think can be pretty sustainable going forward.

See our latest analysis for SIA Engineering

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 annual payment during the last 10 years was SGD0.145 in 2015, and the most recent fiscal year payment was SGD0.09. Doing the maths, this is a decline of about 4.7% per year. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth May Be Hard To Come By

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. In the last five years, SIA Engineering's earnings per share has shrunk at approximately 6.3% per annum. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

SIA Engineering's Dividend Doesn't Look Sustainable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

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. As an example, we've identified 1 warning sign for SIA Engineering that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.