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First Resources Limited's (SGX:EB5) periodic dividend will be increasing on the 15th of May to $0.063, with investors receiving 70% more than last year's $0.037. This takes the annual payment to 6.3% of the current stock price, which is about average for the industry.
We've discovered 2 warning signs about First Resources. View them for free.
First Resources' Payment Could Potentially Have Solid Earnings Coverage
While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Based on the last dividend, First Resources is earning enough to cover the payment, but then it makes up 187% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.
EPS is set to fall by 4.3% over the next 12 months. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 74%, which is comfortable for the company to continue in the future.
See our latest analysis for First Resources
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of $0.0331 in 2015 to the most recent total annual payment of $0.0724. This works out to be a compound annual growth rate (CAGR) of approximately 8.1% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.
The Dividend Looks Likely To Grow
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that First Resources has grown earnings per share at 23% per year over the past five years. First Resources is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.
In Summary
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While First Resources is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 2 warning signs for First Resources (1 is a bit unpleasant!) 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.