How do I know if a company will keep on paying dividends? - Seedly

Dividends

Stocks

Investments

General

Asked by Anonymous

Asked on 29 Apr 2019

How do I know if a company will keep on paying dividends?

How do I know if a company will keep on paying dividends?

1

Answers (5)

Sort By

Most Upvote

  • Most Upvote
  • Most Recent

You don’t.

no matter how rich a parent, you never know when they will stop giving you pocket money whether they cannot give anymore or they decided to stop giving.

If companies cannot give dividends anymore, it may seem bad, but in bad times, this may also mean prudence in managing available funds.

again, dividend is another portion of cash flow management. How companies manage dividends at various financial health is a piece of the puzzle that shows the whole picture.

0 comments

3
Isaac Chan
Isaac Chan, Business at NUS
Top Contributor

Top Contributor (Jun)

Level 8. Wizard
Updated on 02 May 2019

Dividend Payout Ratio

Some other metrics that you can consider is the dividend payout ratio, which is Dividends/Net Income. The lower the ratio, the better, since it could suggest that the company has more funds to pay out as dividends.

Cashflow Staetments

Another metric that you might want to consider is to look at cashflow from investing activities as well. Some companies such as Keppel are very capital intensive, where there is a lot of cash spent on capital expenditures. Some companies also try to grow their cashflows through acquisitions or investments in other companies. Such cash outflow don't typically show up on your income statements directly, but they definitely affect how much dividends can be paid.

Debt

Another metric to compare between the companies is the amount of debt the company has. Debt means that cash would need to be left aside to pay off the debt in future, reducing the amount of cash left for dividends.

0 comments

2
Tan Wei Ming
Tan Wei Ming

()

Level 5. Genius
Answered on 11 May 2019

It is up to the management decision to whether to continue to give out dividends.

What we can do as an investor is only to check whether the dividend is sustainable based on these few factors.

  1. Dividend Payout Ratio (Best to be less than 100%)
  2. FCF (Dividend payout must be less than FCF to be sustainable).

0 comments

1
Lok Yang Teng
Lok Yang Teng
Top Contributor

Top Contributor (Jan)

Level 6. Master
Answered on 01 May 2019
  1. Look at operating cashflow and amount paid to shareholders. If amount paid is more than operating cashflow, the dividend payout is unsustainable and unlikely to continue long.
  2. Past 5 year profits. Ideally, profits should be increasing year on year. This means that company is earning more and they are able to reward shareholders more.
  3. Past 5 year dividend yield/policy. Some companies have policies on the percentage of dividend yield. If dividend yield is very low/policy not present, it is possible for the company to pay low/no dividend. E.g Berkshire

0 comments

1

All the answers with regards to financial ratios and statements only highlight the ability for a company to pay dividends.

The truth is you don't know. They don't have an obligation to keep paying dividends and can stop anytime.

0 comments

0