The board of Fraser and Neave, Limited (SGX:F99) has announced that it will pay a dividend of SGD0.04 per share on the 14th of February. This means the annual payment will be 4.0% of the current stock price, which is lower than the industry average.

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

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Prior to this announcement, Fraser and Neave's dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

Analysts expect a massive rise in earnings per share in the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 13%, so there isn't too much pressure on the dividend.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of SGD0.155 in 2014 to the most recent total annual payment of SGD0.055. Doing the maths, this is a decline of about 9.8% per year. A company that decreases its dividend over time generally isn't what we are looking for.

Fraser and Neave May Find It Hard To Grow The Dividend

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Fraser and Neave hasn't seen much change in its earnings per share over the last five years.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Fraser and Neave'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 would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Fraser and Neave that investors need to be conscious of moving forward. Is Fraser and Neave not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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