SBS Transit (SGX:S61) Will Pay A Larger Dividend Than Last Year At SGD0.0558

The board of SBS Transit Ltd (SGX:S61) has announced that the dividend on 30th of August will be increased to SGD0.0558, which will be 2.4% higher than last year's payment of SGD0.0545 which covered the same period. This will take the dividend yield to an attractive 4.3%, providing a nice boost to shareholder returns.

Check out our latest analysis for SBS Transit

SBS Transit's Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, SBS Transit's dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Looking forward, earnings per share could rise by 2.4% 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 56% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2013, the dividend has gone from SGD0.03 total annually to SGD0.112. This means that it has been growing its distributions at 14% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

SBS Transit May Find It Hard To Grow The Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Earnings have grown at around 2.4% a year for the past five years, which isn't massive but still better than seeing them shrink. SBS Transit is struggling to find viable investments, so it is returning more to shareholders. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

In Summary

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 2 warning signs for SBS Transit (of which 1 is significant!) you should know about. Is SBS Transit not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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