Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Fraser and Neave, Limited (SGX:F99) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase Fraser and Neave's shares before the 18th of May in order to be eligible for the dividend, which will be paid on the 5th of June.

The company's next dividend payment will be S$0.015 per share, on the back of last year when the company paid a total of S$0.05 to shareholders. Based on the last year's worth of payments, Fraser and Neave stock has a trailing yield of around 4.5% on the current share price of SGD1.12. If you buy this business for its dividend, you should have an idea of whether Fraser and Neave's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Fraser and Neave

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Fraser and Neave paid out 56% of its earnings to investors last year, a normal payout level for most businesses. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out an unsustainably high 290% of its free cash flow as dividends over the past 12 months, which is worrying. It's pretty hard to pay out more than you earn, so we wonder how Fraser and Neave intends to continue funding this dividend, or if it could be forced to cut the payment.

Fraser and Neave paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Fraser and Neave's ability to maintain its dividend.

Click here to see how much of its profit Fraser and Neave paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fraser and Neave's earnings have collapsed faster than Wile E Coyote's schemes to trap the Road Runner; down a tremendous 37% a year over the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Fraser and Neave has seen its dividend decline 12% per annum on average over the past 10 years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

The Bottom Line

Has Fraser and Neave got what it takes to maintain its dividend payments? Fraser and Neave had an average payout ratio, but its free cash flow was lower and earnings per share have been declining. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Fraser and Neave. Be aware that Fraser and Neave is showing 2 warning signs in our investment analysis, and 1 of those can't be ignored...

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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