The advice of ComfortDelGro Corporation Limited (SGX:C52) announced that it will pay a dividend of S$0.021 per share on May 27. This means that the annual payout is 3.0% of the current share price, which is above the industry average.
See our latest review for ComfortDelGro
ComfortDelGro revenue easily covers distributions
A big dividend yield for a few years doesn’t mean much if it can’t be sustained. Prior to this announcement, ComfortDelGro’s dividend was a fairly large proportion of earnings, but only 20% of free cash flow. This leaves a lot of money to reinvest in the business.
Looking ahead, earnings per share are expected to increase 53.5% over the next year. If the dividend continues to follow recent trends, we estimate the payout ratio to be 41%, which is within the range that allows us to be comfortable with the sustainability of the dividend.
Although the company has a long history of dividends, it has been cut at least once in the last 10 years. The first annual payment in the past 10 years was S$0.056 in 2012, and the most recent fiscal year payment was S$0.042. This equates to a decline of approximately 2.8% per year over this period. Falling dividends are generally not what we are looking for, as they may indicate that the company is facing some challenges.
Dividend growth potential is fragile
With a relatively unstable dividend, it is even more important to see if earnings per share increase. ComfortDelGro’s EPS has fallen approximately 16% annually over the past five years. Dividend payments are likely to come under some pressure unless EPS can pull itself out of the dip it’s been in. However, next year actually looks positive, with profits expected to increase. We’d just wait for it to become a pattern before we get too excited.
Our thoughts on the ComfortDelGro dividend
In summary, while it’s good to see the dividend hasn’t been cut, we’re a little cautious about ComfortDelGro’s payouts as there may be issues maintaining them in the future. In the past, payouts have been choppy, but in the short term the dividend could be reliable, with the company generating enough cash to cover it. Overall, we don’t think this company has the makings of a good income stock.
Companies with a stable dividend policy are likely to enjoy greater investor interest than those that suffer from a more inconsistent approach. At the same time, there are other factors that our readers should be aware of before investing capital in a stock. Pushing the debate a little further, we have identified 1 warning sign for ComfortDelGro that investors should be aware of going forward. Isn’t ComfortDelGro quite the opportunity you’ve been looking for? Why not check out our selection of the best dividend stocks.
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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.