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The board of ComfortDelGro Corporation Limited (SGX:C52) has announced that it will be increasing its dividend by 13% on the 14th of May to SGD0.0425, up from last year's comparable payment of SGD0.0376. This will take the annual payment to 4.8% of the stock price, which is above what most companies in the industry pay.
View our latest analysis for ComfortDelGro
ComfortDelGro's Future Dividend Projections Appear Well Covered By Earnings
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, ComfortDelGro was paying a whopping 193% as a dividend, but this only made up 6.6% of its overall earnings. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.
The next year is set to see EPS grow by 19.3%. If the dividend continues on this path, the payout ratio could be 62% by next year, which we think can be pretty sustainable going forward.
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 dividend has gone from an annual total of SGD0.0775 in 2015 to the most recent total annual payment of SGD0.0666. This works out to be a decline of approximately 1.5% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.
Dividend Growth May Be Hard To Achieve
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's not great to see that ComfortDelGro's earnings per share has fallen at approximately 4.5% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.
ComfortDelGro'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 ComfortDelGro is earning enough to cover the payments, the cash flows are lacking. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for ComfortDelGro that you should be aware of before investing. 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.