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The board of Frasers Property Limited (SGX:TQ5) has announced that it will pay a dividend of SGD0.045 per share on the 14th of February. This payment means that the dividend yield will be 4.8%, which is around the industry average.
See our latest analysis for Frasers Property
Frasers Property's Projected Earnings Seem Likely To Cover Future Distributions
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, the company was paying out 108% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 13%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
The next year is set to see EPS grow by 20.3%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 74% which would be quite comfortable going to take the dividend forward.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the dividend has gone from SGD0.048 total annually to SGD0.045. Payments have been decreasing at a very slow pace in this time period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
The Dividend Has Limited Growth Potential
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Over the past five years, it looks as though Frasers Property's EPS has declined at around 24% a year. 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. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.
Frasers Property's Dividend Doesn't Look Sustainable
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Frasers Property's payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think Frasers Property 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 2 warning signs for Frasers Property (1 is a bit unpleasant!) 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.