Is It Worth Considering Singapore Technologies Engineering Ltd (SGX:S63) For Its Upcoming Dividend?

It looks like Singapore Technologies Engineering Ltd (SGX:S63) is about to go ex-dividend in the next 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible 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. Accordingly, Singapore Technologies Engineering investors that purchase the stock on or after the 30th of April will not receive the dividend, which will be paid on the 14th of May.

The company's next dividend payment will be S$0.04 per share. Last year, in total, the company distributed S$0.16 to shareholders. Based on the last year's worth of payments, Singapore Technologies Engineering has a trailing yield of 4.0% on the current stock price of S$4.04. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Singapore Technologies Engineering

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. 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. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year it paid out 73% of its free cash flow as dividends, within the usual range for most companies.

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.

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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Singapore Technologies Engineering, with earnings per share up 3.5% on average over the last five years. A high payout ratio of 85% generally happens when a company can't find better uses for the cash. Combined with slim earnings growth in the past few years, Singapore Technologies Engineering could be signalling that its future growth prospects are thin.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Singapore Technologies Engineering's dividend payments are effectively flat on where they were 10 years ago.

To Sum It Up

Should investors buy Singapore Technologies Engineering for the upcoming dividend? Earnings per share have been growing modestly and Singapore Technologies Engineering paid out a bit over half of its earnings and free cash flow last year. To summarise, Singapore Technologies Engineering looks okay on this analysis, although it doesn't appear a stand-out opportunity.

If you want to look further into Singapore Technologies Engineering, it's worth knowing the risks this business faces. Our analysis shows 2 warning signs for Singapore Technologies Engineering and you should be aware of them before buying any shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.