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BRC Asia Limited (SGX:BEC) is about to trade ex-dividend in the next 3 days. If you purchase the stock on or after the 17th of March, you won't be eligible to receive this dividend, when it is paid on the 26th of March.
The upcoming dividend for BRC Asia will put a total of S$0.08 per share in shareholders' pockets, up from last year's total dividends of S$0.05. If you buy this business for its dividend, you should have an idea of whether BRC Asia's dividend is reliable and sustainable. So we need to investigate whether BRC Asia can afford its dividend, and if the dividend could grow.
See our latest analysis for BRC Asia
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Fortunately BRC Asia's payout ratio is modest, at just 31% of profit. A useful secondary check can be to evaluate whether BRC Asia generated enough free cash flow to afford its dividend. It paid out 1.4% of its free cash flow as dividends last year, which is conservatively low.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're not enthused to see that BRC Asia's earnings per share have remained effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Recent earnings growth has been limited. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. BRC Asia has delivered 2.3% dividend growth per year on average over the past ten years.
Final Takeaway
Is BRC Asia worth buying for its dividend? Earnings per share have been flat over this time, but we're intrigued to see that BRC Asia is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. Generally we like to see both low payout ratios and strong earnings per share growth, but BRC Asia is halfway there. BRC Asia looks solid on this analysis overall, and we'd definitely consider investigating it more closely.