Just Four Days Till Singapore Technologies Engineering Ltd (SGX:S63) Will Be Trading Ex-Dividend

Singapore Technologies Engineering Ltd (SGX:S63) stock is about to trade ex-dividend in 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Thus, you can purchase Singapore Technologies Engineering's shares before the 26th of April in order to receive the dividend, which the company will pay on the 10th of May.

The company's next dividend payment will be S$0.10 per share. Last year, in total, the company distributed S$0.16 to shareholders. Looking at the last 12 months of distributions, Singapore Technologies Engineering has a trailing yield of approximately 3.6% on its current stock price of SGD4.15. 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.

View our latest analysis for Singapore Technologies Engineering

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. It paid out 82% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. 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. Dividends consumed 68% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

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?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. 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 3.2% on average over the last five years. A high payout ratio of 82% 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.

Final Takeaway

From a dividend perspective, should investors buy or avoid Singapore Technologies Engineering? 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. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

However if you're still interested in Singapore Technologies Engineering as a potential investment, you should definitely consider some of the risks involved with Singapore Technologies Engineering. Every company has risks, and we've spotted 1 warning sign for Singapore Technologies Engineering you should know about.

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.