The board of Indofood Agri Resources Ltd. (SGX:5JS) has announced that it will pay a dividend on the 28th of May, with investors receiving IDR0.008 per share. Including this payment, the dividend yield on the stock will be 2.6%, which is a modest boost for shareholders' returns.

View our latest analysis for Indofood Agri Resources

Indofood Agri Resources' Earnings Easily Cover The Distributions

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Before making this announcement, Indofood Agri Resources was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, earnings per share could rise by 56.0% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 0.001% by next year, which we think can be pretty sustainable going forward.

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 annual payment during the last 10 years was IDR46.54 in 2014, and the most recent fiscal year payment was IDR93.02. This works out to be a compound annual growth rate (CAGR) of approximately 7.2% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see that Indofood Agri Resources has been growing its earnings per share at 56% a year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

We Really Like Indofood Agri Resources' Dividend

Overall, we like to see the dividend staying consistent, and we think Indofood Agri Resources might even raise payments in the future. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All in all, this checks a lot of the boxes we look for when choosing an income stock.

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. See if management have their own wealth at stake, by checking insider shareholdings in Indofood Agri Resources stock. Is Indofood Agri Resources not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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