Should You Buy OUE Limited (SGX:LJ3) For Its Upcoming Dividend?

Readers hoping to buy OUE Limited (SGX:LJ3) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase OUE's shares before the 8th of May in order to be eligible for the dividend, which will be paid on the 24th of May.

The company's next dividend payment will be S$0.03 per share, and in the last 12 months, the company paid a total of S$0.02 per share. Based on the last year's worth of payments, OUE stock has a trailing yield of around 1.9% on the current share price of S$1.05. If you buy this business for its dividend, you should have an idea of whether OUE's dividend is reliable and sustainable. As a result, readers should always check whether OUE has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for OUE

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. OUE is paying out just 21% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. The good news is it paid out just 8.0% of its free cash flow in the 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 OUE paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see OUE's earnings have been skyrocketing, up 54% per annum for the past five years. OUE earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky "beep-beep". We also like that it is reinvesting most of its profits in its business.'

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. OUE's dividend payments per share have declined at 12% per year on average over the past 10 years, which is uninspiring. OUE is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

The Bottom Line

Is OUE worth buying for its dividend? OUE has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Overall we think this is an attractive combination and worthy of further research.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For instance, we've identified 2 warning signs for OUE (1 is concerning) you should be aware of.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.