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A Look At Thai Beverage Public Company Limited’s Dividend From 3 Important Investing Perspectives

Thai Beverage Public Company Limited (SGX: Y92) is primarily a beer and spirits manufacturer that operates in Thailand.

The company has been paying a dividend in its last 10 fiscal years. But this raises the question:  Is the dividend sustainable in the future?

Unfortunately, there is no easy answer. There is no simple calculation that can tell investors for sure whether a company can grow or maintain its dividend in the years ahead.

But, there are still things about a company’s business we can look at for clues. Here are three of them, keeping in mind that they are not the only important aspects: (1) the company’s profit history, (2) the company’s pay-out ratio, and (3) the strength of the company’s balance sheet.

Profit history

A company’s profits are an important source of its dividends. What we would like to find out is whether Thai Beverage has seen any losses or big dips in profit over the past five years.

thai-beverage-net-income
Source: S&P Global Market Intelligence

From the numbers above, we can see that there was a significant drop in profit in 2013. But that was due to a one-off gain in 2012. In the absence of the one-of gain, Thai Beverage would actually have shown growth in net profit in each consecutive year for the timeframe under study.

The pay-out ratio

The pay-out ratio refers to the percentage of a company’s profit that is paid out as a dividend.

There are two related things to bear in mind here. First, pay-out ratios should be less than 100%; it’s tough for a company to maintain its dividend if it is paying out all its profit. Second, the logic thus follows that the lower the pay-out ratio is, the better it could be; a low pay-out ratio means that a company’s dividend has more buffer to absorb negative developments in the business.

Thai Beverage had paid a dividend of 0.61 baht per share in 2015. With its earnings per share of 1.05 baht in the same year, that works out to a pay-out ratio of 58%.

Strength of the balance sheet

Dividends are paid out to investors in the form of cash. Thus, a company must have enough cash in the till or at least have the ability to borrow money (if necessary) to pay its dividend. Generally speaking, a company with a strong balance sheet has the resources needed to help fund its dividend.

To gauge the strength of a company’s balance sheet, the net-debt to shareholders’ equity ratio can be used (net-debt refers to total borrowings and capital leases net of cash and short-term investments). A ratio of over 100% would mean that a company’s net-debt outweighs its shareholder’s equity.

In the case of Thai Beverage, its latest financials (as of 30 September 2016) show that it has a net-debt to shareholders’ equity ratio of 34%. While Thai Beverage does have a significant chunk of borrowings, its net-debt to shareholders’ equity ratio is still on the low end.

A Fool’s take

In all, Thai Beverage is a company that has consistent profit growth (after stripping off one-off gains), a pay-out ratio of just 58%, and a net-debt to shareholders’ equity ratio of just 34%.

Nevertheless, it’s worth reiterating that all that we’ve seen with the company above should not be taken as the final word on its investing merits – after all, like I already mentioned, there are many other aspects of a company’s business to study when it comes to assessing the sustainability of its dividend.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.