Read This Before Considering Dalrymple Bay Infrastructure Limited (ASX:DBI) For Its Upcoming AU$0.054 Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Dalrymple Bay Infrastructure Limited (ASX:DBI) is about to go ex-dividend in just 2 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Thus, you can purchase Dalrymple Bay Infrastructure's shares before the 5th of December in order to receive the dividend, which the company will pay on the 20th of December.

The company's next dividend payment will be AU$0.054 per share. Last year, in total, the company distributed AU$0.20 to shareholders. Last year's total dividend payments show that Dalrymple Bay Infrastructure has a trailing yield of 7.3% on the current share price of A$2.75. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Dalrymple Bay Infrastructure

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Its dividend payout ratio is 85% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be worried about the risk of a drop in earnings. A useful secondary check can be to evaluate whether Dalrymple Bay Infrastructure generated enough free cash flow to afford its dividend. It paid out more than half (58%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Dalrymple Bay Infrastructure's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Dalrymple Bay Infrastructure has grown its earnings rapidly, up 514% a year for the past five years. Earnings per share are growing at a rapid rate, yet the company is paying out more than three-quarters of its earnings.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Dalrymple Bay Infrastructure has delivered 5.7% dividend growth per year on average over the past two years. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

The Bottom Line

Is Dalrymple Bay Infrastructure worth buying for its dividend? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. That's why we're glad to see Dalrymple Bay Infrastructure's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 85% and 58% respectively. Overall, it's hard to get excited about Dalrymple Bay Infrastructure from a dividend perspective.

While it's tempting to invest in Dalrymple Bay Infrastructure for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 2 warning signs for Dalrymple Bay Infrastructure that we strongly recommend you have a look at before investing in the company.

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

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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.