Fraser and Neave, Limited (SGX:F99) will pay a dividend of SGD0.04 on the 14th of February. The dividend yield is 4.1% based on this payment, which is a little bit low compared to the other companies in the industry.

Fraser and Neave's Future Dividend Projections Appear Well Covered By Earnings

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. The last dividend was quite easily covered by Fraser and Neave's earnings. This means that a large portion of its earnings are being retained to grow the business.

Looking forward, EPS could fall by 0.3% if the company can't turn things around from the last few years. If the dividend continues along recent trends, we estimate the payout ratio could be 50%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

historic-dividend

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 annual payment back then was SGD0.14, compared to the most recent full-year payment of SGD0.055. Doing the maths, this is a decline of about 8.9% per year. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend's Growth Prospects Are Limited

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Unfortunately, Fraser and Neave's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.

Our Thoughts On Fraser and Neave's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. Overall, we don't think this company has the makings of a good income stock.

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.