Sing Investments & Finance Limited (SGX:S35) will increase its dividend on the 8th of May to SGD0.065, which is 8.3% higher than last year’s payment from the same period of SGD0.06. This takes the dividend yield to 5.7%, which shareholders will be pleased with.

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Sing Investments & Finance’s earnings easily covered the dividend, but free cash flows were negative. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Looking forward, earnings per share could rise by 12.7% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 40% by next year, which we think can be pretty sustainable going forward.

View our latest analysis for Sing Investments & Finance

The company has a long dividend track record, but it doesn’t look great with cuts in the past. Since 2015, the annual payment back then was SGD0.0333, compared to the most recent full-year payment of SGD0.065. This means that it has been growing its distributions at 6.9% per annum over that time. A reasonable rate of dividend growth is good to see, but we’re wary that the dividend history is not as solid as we’d like, having been cut at least once.

With a relatively unstable dividend, it’s even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Sing Investments & Finance has grown earnings per share at 13% per year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we’ve identified 2 warning signs for Sing Investments & Finance (1 can’t be ignored!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated 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.