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The board of PNE Industries Ltd (SGX:BDA) has announced that it will pay a dividend on the 14th of February, with investors receiving SGD0.02 per share. This payment means that the dividend yield will be 5.3%, which is around the industry average.
Check out our latest analysis for PNE Industries
PNE Industries' Future Dividends May Potentially Be At Risk
We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, the dividend made up 196% of earnings, and the company was generating negative free cash flows. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.
EPS is set to fall by 30.9% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 263%, which could put the dividend under pressure if earnings don't start to improve.
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 SGD0.016 in 2015 to the most recent total annual payment of SGD0.03. This means that it has been growing its distributions at 6.5% per annum 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.
Dividend Growth Potential Is Shaky
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. PNE Industries' EPS has fallen by approximately 31% per year during the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.
PNE Industries' Dividend Doesn't Look Great
Overall, while some might be pleased that the dividend wasn't cut, we think this may help PNE Industries make more consistent payments in the future. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. Considering all of these factors, we wouldn't rely on this dividend if we wanted to live on the income.
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. Case in point: We've spotted 4 warning signs for PNE Industries (of which 3 are significant!) you should know about. 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.