Be Sure To Check Out Tai Sin Electric Limited (SGX:500) Before It Goes Ex-Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Tai Sin Electric Limited (SGX:500) is about to trade ex-dividend in the next 3 days. If you purchase the stock on or after the 25th of February, you won't be eligible to receive this dividend, when it is paid on the 8th of March.

Tai Sin Electric's next dividend payment will be S$0.0075 per share, on the back of last year when the company paid a total of S$0.015 to shareholders. Calculating the last year's worth of payments shows that Tai Sin Electric has a trailing yield of 4.5% on the current share price of SGD0.335. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Tai Sin Electric

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. Tai Sin Electric paid out a comfortable 35% of its profit last year. A useful secondary check can be to evaluate whether Tai Sin Electric generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 23% of its cash flow last year.

It's positive to see that Tai Sin Electric'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 how much of its profit Tai Sin Electric paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. That explains why we're not overly excited about Tai Sin Electric's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Recent growth has not been impressive. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Tai Sin Electric's dividend payments per share have declined at 1.5% per year on average over the past 10 years, which is uninspiring.

Final Takeaway

Is Tai Sin Electric an attractive dividend stock, or better left on the shelf? Earnings per share have been flat over this time, but we're intrigued to see that Tai Sin Electric is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. Generally we like to see both low payout ratios and strong earnings per share growth, but Tai Sin Electric is halfway there. Tai Sin Electric looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

In light of that, while Tai Sin Electric has an appealing dividend, it's worth knowing the risks involved with this stock. Be aware that Tai Sin Electric is showing 3 warning signs in our investment analysis, and 1 of those shouldn't be ignored...

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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