Stamford Tyres Corporation Limited (SGX:S29) will pay a dividend of SGD0.015 on the 25th of September. This means that the annual payment will be 7.3% of the current stock price, which is in line with the average for the industry.

See our latest analysis for Stamford Tyres

Stamford Tyres' Dividend Is Well Covered By Earnings

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, Stamford Tyres' dividend made up quite a large proportion of earnings but only 28% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

EPS is set to fall by 4.5% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could reach 88%, which is definitely on the higher side.

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. The last annual payment of SGD0.015 was flat on the annual payment from10 years ago. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Over the past five years, it looks as though Stamford Tyres' EPS has declined at around 4.5% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would probably look elsewhere for an income investment.

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. Case in point: We've spotted 3 warning signs for Stamford Tyres (of which 1 is a bit concerning!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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