The board of JB Foods Limited (SGX:BEW) has announced that it will pay a dividend of $0.002 per share on the 22nd of September. Including this payment, the dividend yield on the stock will be 3.6%, which is a modest boost for shareholders' returns.
Check out our latest analysis for JB Foods
JB Foods' Dividend Is Well Covered By Earnings
Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, JB Foods' earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
EPS is set to fall by 9.3% 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 30%, 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. Since 2013, the dividend has gone from $0.0532 total annually to $0.0133. This works out to a decline of approximately 75% over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.
Dividend Growth Is Doubtful
Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. JB Foods has seen earnings per share falling at 9.3% per year over the last five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.
JB Foods' Dividend Doesn't Look Sustainable
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think JB Foods is a great stock to add to your portfolio if income is your focus.
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 4 warning signs for JB Foods (3 make us uncomfortable!) that you should be aware of before investing. 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.