Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Brook Crompton Holdings Ltd. (SGX:AWC) is about to go ex-dividend in just 3 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Thus, you can purchase Brook Crompton Holdings' shares before the 10th of May in order to receive the dividend, which the company will pay on the 30th of May.
The company's next dividend payment will be S$0.02 per share, and in the last 12 months, the company paid a total of S$0.02 per share. Last year's total dividend payments show that Brook Crompton Holdings has a trailing yield of 3.6% on the current share price of S$0.55. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Brook Crompton Holdings has a low and conservative payout ratio of just 17% of its income after tax. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 12% of its cash flow last year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see how much of its profit Brook Crompton Holdings paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Brook Crompton Holdings, with earnings per share up 2.9% on average over the last five years. Brook Crompton Holdings is retaining more than three-quarters of its earnings and has a history of generating some growth in earnings. We think this is a reasonable combination.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Brook Crompton Holdings's dividend payments are broadly unchanged compared to where they were seven years ago.
The Bottom Line
Should investors buy Brook Crompton Holdings for the upcoming dividend? Earnings per share have been growing moderately, and Brook Crompton Holdings is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Brook Crompton Holdings is halfway there. It's a promising combination that should mark this company worthy of closer attention.
On that note, you'll want to research what risks Brook Crompton Holdings is facing. To that end, you should learn about the 3 warning signs we've spotted with Brook Crompton Holdings (including 1 which is concerning).
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
