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The board of Keppel Ltd. (SGX:BN4) has announced that it will pay a dividend of SGD0.19 per share on the 9th of May. The dividend yield will be 5.8% based on this payment which is still above the industry average.
Keppel's Future Dividend Projections Appear Well Covered By Earnings
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, Keppel was paying out a fairly large proportion of earnings, and it wasn't generating positive free cash flows either. Generally, we think that this would be a risky long term practice.
The next year is set to see EPS grow by 43.5%. Assuming the dividend continues along recent trends, we think the payout ratio could be 50% by next year, which is in a pretty sustainable range.
View our latest analysis for Keppel
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of SGD0.42 in 2015 to the most recent total annual payment of SGD0.34. This works out to be a decline of approximately 2.1% per year 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.
The Dividend's Growth Prospects Are Limited
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. Earnings have grown at around 3.3% a year for the past five years, which isn't massive but still better than seeing them shrink. Earnings are not growing quickly at all, and the company is paying out most of its profit as dividends. This isn't the end of the world, but for investors looking for strong dividend growth they may want to look elsewhere.
Our Thoughts On Keppel's Dividend
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Keppel is a great stock to add to your portfolio if income is your focus.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 3 warning signs for Keppel (1 is significant!) 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.