Sin Heng Heavy Machinery (SGX:BKA) Could Be A Buy For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Sin Heng Heavy Machinery Limited (SGX:BKA) is about to trade ex-dividend in the next 3 days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Meaning, you will need to purchase Sin Heng Heavy Machinery's shares before the 16th of May to receive the dividend, which will be paid on the 26th of May.

The company's next dividend payment will be S$0.05 per share, and in the last 12 months, the company paid a total of S$0.05 per share. Looking at the last 12 months of distributions, Sin Heng Heavy Machinery has a trailing yield of approximately 8.0% on its current stock price of S$0.625. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Sin Heng Heavy Machinery has been able to grow its dividends, or if the dividend might be cut.

We've discovered 2 warning signs about Sin Heng Heavy Machinery. View them for free.

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. Sin Heng Heavy Machinery is paying out just 17% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Luckily it paid out just 9.6% of its free cash flow last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Check out our latest analysis for Sin Heng Heavy Machinery

Click here to see how much of its profit Sin Heng Heavy Machinery paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Sin Heng Heavy Machinery's earnings have been skyrocketing, up 43% per annum for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Sin Heng Heavy Machinery looks like a promising growth company.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Sin Heng Heavy Machinery's dividend payments are effectively flat on where they were 10 years ago.

To Sum It Up

Is Sin Heng Heavy Machinery an attractive dividend stock, or better left on the shelf? Sin Heng Heavy Machinery has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. It's a promising combination that should mark this company worthy of closer attention.

While it's tempting to invest in Sin Heng Heavy Machinery for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 2 warning signs for Sin Heng Heavy Machinery you should be aware of.

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.