Don't Race Out To Buy Singapore Technologies Engineering Ltd (SGX:S63) Just Because It's Going Ex-Dividend

It looks like Singapore Technologies Engineering Ltd (SGX:S63) is about to go ex-dividend in the next 4 days. You can purchase shares before the 21st of August in order to receive the dividend, which the company will pay on the 3rd of September.

Singapore Technologies Engineering's next dividend payment will be S$0.05 per share. Last year, in total, the company distributed S$0.15 to shareholders. Based on the last year's worth of payments, Singapore Technologies Engineering has a trailing yield of 3.7% on the current stock price of SGD4.04. If you buy this business for its dividend, you should have an idea of whether Singapore Technologies Engineering's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Singapore Technologies Engineering

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Singapore Technologies Engineering paid out 92% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year, it paid out dividends equivalent to 238% of what it generated in free cash flow, a disturbingly high percentage. Unless there were something in the business we're not grasping, this could signal a risk that the dividend may have to be cut in the future.

Cash is slightly more important than profit from a dividend perspective, but given Singapore Technologies Engineering's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. So we're not too excited that Singapore Technologies Engineering's earnings are down 2.8% a year over the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Singapore Technologies Engineering's dividend payments per share have declined at 0.5% per year on average over the past 10 years, which is uninspiring.

Final Takeaway

Is Singapore Technologies Engineering worth buying for its dividend? It's looking like an unattractive opportunity, with its earnings per share declining, while, paying out an uncomfortably high percentage of both its profits (92%) and cash flow (238%) as dividends. This is a clearly suboptimal combination that usually suggests the dividend is at risk of being cut. If not now, then perhaps in the future. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

Wondering what the future holds for Singapore Technologies Engineering? See what the 14 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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