Is ABR Holdings Limited (SGX:533) An Attractive Dividend Stock?

Live

China retaliated with 34% tariffs on US goods, while Trump vows his policies will 'never change.'

Simply Wall St

Mon, Apr 20, 2020, 7:29 PM 4 min read

Could ABR Holdings Limited (SGX:533) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. Unfortunately, it's common for investors to be enticed in by the seemingly attractive yield, and lose money when the company has to cut its dividend payments.

While ABR Holdings's 2.3% dividend yield is not the highest, we think its lengthy payment history is quite interesting. Some simple research can reduce the risk of buying ABR Holdings for its dividend - read on to learn more.

Explore this interactive chart for our latest analysis on ABR Holdings!

SGX:533 Historical Dividend Yield April 21st 2020

Payout ratios

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. ABR Holdings paid out 153% of its profit as dividends, over the trailing twelve month period. A payout ratio above 100% is definitely an item of concern, unless there are some other circumstances that would justify it.

In addition to comparing dividends against profits, we should inspect whether the company generated enough cash to pay its dividend. ABR Holdings's cash payout ratio last year was 19%. Cash flows are typically lumpy, but this looks like an appropriately conservative payout. It's good to see that while ABR Holdings's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.

With a strong net cash balance, ABR Holdings investors may not have much to worry about in the near term from a dividend perspective.

Consider getting our latest analysis on ABR Holdings's financial position here.

Dividend Volatility

From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. ABR Holdings has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. The dividend has been cut on at least one occasion historically. During the past ten-year period, the first annual payment was S$0.02 in 2010, compared to S$0.015 last year. This works out to be a decline of approximately 2.8% per year over that time. ABR Holdings's dividend hasn't shrunk linearly at 2.8% per annum, but the CAGR is a useful estimate of the historical rate of change.

When a company's per-share dividend falls we question if this reflects poorly on either external business conditions, or the company's capital allocation decisions. Either way, we find it hard to get excited about a company with a declining dividend.

Dividend Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share (EPS) are growing. Why take the risk of a dividend getting cut, unless there's a good chance of bigger dividends in future? ABR Holdings's EPS have fallen by approximately 24% per year during the past five years. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and ABR Holdings's earnings per share, which support the dividend, have been anything but stable.

Conclusion

Dividend investors should always want to know if a) a company's dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. We're a bit uncomfortable with its high payout ratio, although at least the dividend was covered by free cash flow. Earnings per share are down, and ABR Holdings's dividend has been cut at least once in the past, which is disappointing. With this information in mind, we think ABR Holdings may not be an ideal dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come accross 3 warning signs for ABR Holdings you should be aware of, and 1 of them makes us a bit uncomfortable.

If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.

Terms and Privacy Policy

Your Privacy Choices

Utah Privacy Notice

More Info