Sembcorp Industries Ltd (SGX:U96) has announced that it will be increasing its dividend from last year's comparable payment on the 13th of May to SGD0.17. The payment will take the dividend yield to 3.7%, which is in line with the average for the industry.

View our latest analysis for Sembcorp Industries

Sembcorp Industries' Payment Could Potentially Have Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Before making this announcement, Sembcorp Industries was earning enough to cover the dividend, but it wasn't generating any free cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

The next year is set to see EPS grow by 32.3%. If the dividend continues along recent trends, we estimate the payout ratio will be 29%, which is in the range that makes us comfortable with the sustainability of the dividend.

SGX:U96 Historic Dividend March 19th 2025

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2015, the annual payment back then was SGD0.10, compared to the most recent full-year payment of SGD0.23. This implies that the company grew its distributions at a yearly rate of about 8.7% over that duration. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Sembcorp Industries has impressed us by growing EPS at 31% per year over the past five years. Sembcorp Industries is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

Our Thoughts On Sembcorp Industries' Dividend

Overall, we always like to see the dividend being raised, but we don't think Sembcorp Industries will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Sembcorp Industries is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Sembcorp Industries has 2 warning signs (and 1 which can't be ignored) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

If you're looking to trade Sembcorp Industries, open an account with the lowest-cost platform trusted by professionals, Interactive Brokers.

With clients in over 200 countries and territories, and access to 160 markets, IBKR lets you trade stocks, options, futures, forex, bonds and funds from a single integrated account.

Enjoy no hidden fees, no account minimums, and FX conversion rates as low as 0.03%, far better than what most brokers offer.

Sponsored Content