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3 Key Things Investors Should Know About Top Glove’s Dividends

Top Glove (SGX: BVA) has been a regular dividend payer since 2001. The firm, which has a primary listing in Bursa Malaysia, Malaysia’s stock exchange, held its secondary listing in Singapore back in mid-2016.

Top Glove is the world’s largest rubber glove manufacturer with 2,000 customers worldwide. The glove maker has 28 factories and exports to over 195 countries. The company’s annual report for its financial year ended 31 August 2016 (FY2016) contained important information about its dividend. Here’re three things I learnt:

1. Dividend policy

Top Glove has a dividend policy of paying out 50% of its profit after tax and minority interests (PATMI). As we can see from the graph shown below, Top Glove paid out between 49% and 60% of its profits in each year from FY2011 to FY2016 as a dividend.

2. A rising dividend

Back in FY2001, Top Glove paid a dividend of 0.4 sen per share (adjusted for bonus issues and subdivision of shares). In FY2016, the figure had risen to 14.5 sen per share. This is an increase of over 36 times over the last 15 years.

2017-03-17 Top Glove Dividend
Source: Top Glove’s annual report

Top Glove’s dividend has mostly increased from year to year, but not always. For instance, the company’s dividend had declined in FY2002 as well as FY2011. It also was flat at eight sen per share from FY2012 to FY2014.

3. How the dividends are funded

Dividends are nice to have for shareholders, but it does not come cheap for the company. From a cash perspective, Top Glove paid out RM4 million in dividends in FY2001. In FY2016, this figure increased to around RM182 million.

Ideally, we would want Top Glove to be able to fund its dividend with its free cash flow.

For FY2016, Top Glove generated around RM202 million in free cash flow. If Top Glove is able to sustain its free cash flow in the future, its current dividend should be covered. Investors interested in dividends should be looking for Top Glove to increase its free cash flow over time to have better assurance that the company’s dividend can be sustained.

For more on Top Glove’s business, you can check out here and here.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.