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The board of Chemical Industries (Far East) Limited (SGX:C05) has announced that it will pay a dividend on the 19th of August, with investors receiving SGD0.015 per share. This means the annual payment will be 2.8% of the current stock price, which is lower than the industry average.
View our latest analysis for Chemical Industries (Far East)
Chemical Industries (Far East)'s Earnings Easily Cover The Distributions
While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Based on the last payment, Chemical Industries (Far East) was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.
EPS is set to fall by 13.6% over the next 12 months if recent trends continue. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 25%, which is definitely feasible to continue.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The most recent annual payment of SGD0.015 is about the same as the annual payment 10 years ago. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.
Dividend Growth Potential Is Shaky
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Over the past five years, it looks as though Chemical Industries (Far East)'s EPS has declined at around 14% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.
Chemical Industries (Far East)'s Dividend Doesn't Look Sustainable
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Chemical Industries (Far East) has 5 warning signs (and 2 which shouldn't be ignored) we think you should know about. Is Chemical Industries (Far East) not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.