Some investors rely on dividends to grow their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that Fraser and Neave, Limited (SGX:F99) is set to go ex-dividend in just three days. The ex-dividend date occurs one day before the record date which is the day shareholders must be on the books of the company to receive a dividend. The ex-dividend date is an important date to know because any purchase of shares made on or after this date may mean late settlement which does not appear on the record date. This means that investors who buy Fraser and Neave shares on or after May 19 will not receive the dividend, which will be paid on June 6.
The company’s next dividend is S$0.015 per share, following the last 12 months when the company distributed a total of S$0.05 per share to shareholders. Last year’s total dividend payouts show Fraser and Neave yielding 3.7% on the current share price of SGD 1.36. If you’re buying this company for its dividend, you should have some idea of the reliability and sustainability of Fraser and Neave’s dividend. We therefore need to check whether dividend payments are covered and whether profits are increasing.
See our latest analysis for Fraser and Neave
If a company pays out more dividends than it has earned, the dividend may become unsustainable – a less than ideal situation. Fraser and Neave paid out 53% of its profits to investors last year, a normal payout level for most companies. Still, cash flow is even more important than earnings in evaluating a dividend, so we need to see if the company has generated enough cash to pay its distribution. Fortunately, it has only paid out 49% of its free cash flow over the past year.
It is encouraging to see that the dividend is covered by both earnings and cash flow. This generally suggests that the dividend is sustainable, as long as earnings don’t drop precipitously.
Click here to see how much of his profits Fraser and Neave have paid out over the past 12 months.
Have earnings and dividends increased?
Companies with strong growth prospects are generally the best dividend payers because it is easier to increase dividends when earnings per share improve. If business goes into a recession and the dividend is cut, the company could see its value drop precipitously. With this in mind, we are encouraged by the steady growth of Fraser and Neave, with earnings per share up 4.5% on average over the past five years. Earnings growth has been weak and the company is paying out more than half of its profits. Although it is possible to both increase the payout ratio and reinvest in the business, generally the higher the payout ratio, the lower the prospects for future growth of a business.
Most investors primarily gauge a company’s dividend prospects by checking the historical rate of dividend growth. Fraser and Neave has seen its dividend drop by an average of 12% per year over the past 10 years, which isn’t great to see. Fraser and Neave is a rare case where dividends have fallen at the same time earnings per share have improved. It’s unusual to see and could indicate unstable conditions in the core business, or more rarely an increased focus on reinvesting profits.
Is Fraser and Neave an attractive dividend stock, or is it better left on the shelf? Earnings per share growth was modest and Fraser and Neave paid out more than half of its earnings and less than half of its free cash flow, although both payout ratios were within normal limits. All in all, not a bad combination, but we believe there are probably more attractive dividend prospects.
On that note, you’ll want to research the risks Fraser and Neave face. To do this, you need to find out about the 2 warning signs we spotted with Fraser and Neave (including 1 must).
As a general rule, we don’t recommend simply buying the first dividend-paying stock you see. Here is a curated list of attractive stocks that are strong dividend payers.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.