PNE Industries (SGX:BDA) Set to Pay Dividend of SGD0.02: A Closer Look

PNE Industries Ltd (SGX:BDA) has announced that it will be paying a dividend of SGD0.02 per share on the 14th of February. This payment represents a dividend yield of 5.3%, which is in line with the average for the industry. However, a closer look at the company's financials reveals some concerns that investors should be aware of.

Prior to this announcement, the dividend made up 196% of earnings, indicating that the company was paying out a significant portion of its earnings as dividends. Additionally, the company was generating negative free cash flows, which suggests that it was not generating enough cash to cover its operating expenses and capital expenditures. This situation could place significant strain on the company's balance sheet if it continues.

Looking forward, if the company cannot turn things around, its earnings per share (EPS) could fall by 30.9% over the next year. Assuming the dividend continues along recent trends, the payout ratio could reach 263%, which would put the dividend under significant pressure if earnings do not start to improve.

It's important to note that the company's dividend history has been marked by instability, with at least one cut in the last 10 years. While the dividend has been growing at a rate of 6.5% per annum over that time, the fact that it has been cut at least once in the past is a cause for concern.

Furthermore, the company's earnings per share (EPS) have been declining rapidly over the past five years, with a decline of approximately 31% per year. This decline in earnings has made it difficult for the company to maintain its dividend payments, and investors should be cautious about relying on the dividend for income.

In conclusion, while the upcoming dividend payment from PNE Industries may seem attractive at first glance, a closer look at the company's financials reveals some significant concerns. The high dividend payout ratio, negative free cash flows, and declining earnings per share all suggest that the company may struggle to maintain its dividend payments in the future. Investors should be cautious about relying on the dividend for income and should consider the potential risks before making an investment decision.