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Sheng Siong Group Ltd's (SGX:OV8) dividend is being reduced by 3.2% to SGD0.0305 per share on 30th of August, in comparison to last year's comparable payment of SGD0.0315. However, the dividend yield of 3.8% still remains in a typical range for the industry.
View our latest analysis for Sheng Siong Group
Sheng Siong Group's Dividend Is Well Covered By Earnings
Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, Sheng Siong Group's dividend made up quite a large proportion of earnings but only 51% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.
Looking forward, earnings per share is forecast to rise by 5.6% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 72% by next year, which is in a pretty sustainable range.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of SGD0.02 in 2013 to the most recent total annual payment of SGD0.0622. This means that it has been growing its distributions at 12% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Sheng Siong Group has impressed us by growing EPS at 13% per year over the past five years. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.
We Really Like Sheng Siong Group's Dividend
Overall, we think that Sheng Siong Group could be a great option for a dividend investment, although we would have preferred if the dividend wasn't cut this year. By reducing the dividend, pressure will be taken off the balance sheet, which could help the dividend to be consistent in the future. All of these factors considered, we think this has solid potential as a dividend stock.
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 instance, we've picked out 1 warning sign for Sheng Siong Group that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.