Why It Might Not Make Sense To Buy Genting Singapore Limited (SGX:G13) For Its Upcoming Dividend
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 Genting Singapore Limited (SGX:G13) is about to go ex-dividend in just three days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. This means that investors who purchase Genting Singapore's shares on or after the 30th of April will not receive the dividend, which will be paid on the 26th of May.
The company's next dividend payment will be S$0.02 per share, on the back of last year when the company paid a total of S$0.04 to shareholders. Looking at the last 12 months of distributions, Genting Singapore has a trailing yield of approximately 5.7% on its current stock price of S$0.705. If you buy this business for its dividend, you should have an idea of whether Genting Singapore's dividend is reliable and sustainable. 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. Genting Singapore paid out 124% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. A useful secondary check can be to evaluate whether Genting Singapore generated enough free cash flow to afford its dividend. Over the last year, it paid out dividends equivalent to 399% of what it generated in free cash flow, a disturbingly high percentage. Unless there were something in the business we're not grasping, this could signal a risk that the dividend may have to be cut in the future.
Genting Singapore does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.
Cash is slightly more important than profit from a dividend perspective, but given Genting Singapore's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.
Check out our latest analysis for Genting Singapore
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Genting Singapore has grown its earnings rapidly, up 41% a year for the past five years. Earnings per share are increasing at a rapid rate, but the company is paying out more than we think is sustainable, based on current earnings. Generally, when a company is paying out more than it earned as dividends, it could signal either that the company is spending heavily to fund its growth, or that earnings growth is likely to slow due to lack of reinvestment.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Genting Singapore has lifted its dividend by approximately 10% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
To Sum It Up
Has Genting Singapore got what it takes to maintain its dividend payments? While it's nice to see earnings per share growing, we're curious about how Genting Singapore intends to continue growing, or maintain the dividend in a downturn given that it's paying out such a high percentage of its earnings and cashflow. It's not that we think Genting Singapore is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
With that being said, if you're still considering Genting Singapore as an investment, you'll find it beneficial to know what risks this stock is facing. To that end, you should learn about the 2 warning signs we've spotted with Genting Singapore (including 1 which doesn't sit too well with us).
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.