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Old Chang Kee Ltd. (Catalist:5ML) will pay a dividend of SGD0.01 on the 29th of August. The dividend yield is 3.2% based on this payment, which is a little bit low compared to the other companies in the industry.
Check out our latest analysis for Old Chang Kee
Old Chang Kee's Earnings Easily Cover The Distributions
Even a low dividend yield can be attractive if it is sustained for years on end. Before making this announcement, Old Chang Kee was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.
Looking forward, earnings per share could rise by 10.2% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 36% by next year, which is in a pretty sustainable range.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was SGD0.015 in 2013, and the most recent fiscal year payment was SGD0.02. This means that it has been growing its distributions at 2.9% per annum over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.
The Dividend Looks Likely To Grow
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. We are encouraged to see that Old Chang Kee has grown earnings per share at 10% per year over the past five years. Old Chang Kee definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
Old Chang Kee Looks Like A Great Dividend Stock
In summary, it is good to see that the dividend is staying consistent, and we don't think there is any reason to suspect this might change over the medium term. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 3 warning signs for Old Chang Kee (of which 1 is concerning!) 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.