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The Straits Trading Company Limited (SGX:S20) has announced that it will pay a dividend of SGD0.08 per share on the 30th of June. This means the annual payment is 5.6% of the current stock price, which is above the average for the industry.
We've discovered 3 warning signs about Straits Trading. View them for free.
Straits Trading's Distributions May Be Difficult To Sustain
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Straits Trading is unprofitable despite paying a dividend, and it is paying out 497% of its free cash flow. This makes us feel that the dividend will be hard to maintain.
Looking forward, earnings per share could 12.1% over the next year if the trend of the last few years can't be broken. This means the company will be unprofitable and managers could face the tough choice between continuing to pay the dividend or taking pressure off the balance sheet.
View our latest analysis for Straits Trading
Straits Trading Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2015, the dividend has gone from SGD0.0339 total annually to SGD0.08. This implies that the company grew its distributions at a yearly rate of about 9.0% over that duration. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.
Dividend Growth Potential Is Shaky
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, initial appearances might be deceiving. Straits Trading's earnings per share has shrunk at 12% a year over the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.
The Dividend Could Prove To Be Unreliable
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. Although they have been consistent in the past, we think the payments are a little high to be sustained. This company is not in the top tier of income providing stocks.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 3 warning signs for Straits Trading that investors should know about before committing capital to this stock. 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.