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The board of Haw Par Corporation Limited (SGX:H02) has announced that the dividend on 21st of May will be increased to SGD1.20, which will be 500% higher than last year's payment of SGD0.20 which covered the same period. This will take the dividend yield to an attractive 3.1%, providing a nice boost to shareholder returns.
Estimates Indicate Haw Par's Could Struggle to Maintain Dividend Payments In The Future
If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, Haw Par was paying only paying out a fraction of earnings, but the payment was a massive 176% of cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.
Over the next year, EPS could expand by 4.6% if the company continues along the path it has been on recently. If the dividend continues on its recent course, the payout ratio in 12 months could be 139%, which is a bit high and could start applying pressure to the balance sheet.
See our latest analysis for Haw Par
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the dividend has gone from SGD0.20 total annually to SGD0.40. This implies that the company grew its distributions at a yearly rate of about 7.2% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Haw Par might have put its house in order since then, but we remain cautious.
The Dividend's Growth Prospects Are Limited
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. However, Haw Par has only grown its earnings per share at 4.6% per annum over the past five years. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.
Our Thoughts On Haw Par's Dividend
Overall, we always like to see the dividend being raised, but we don't think Haw Par will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Haw Par that investors should know about before committing capital to this stock. 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.