Straco Corporation Limited (SGX:S85) Stock Goes Ex-Dividend In Just Three Days

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Straco Corporation Limited (SGX:S85) is about to go ex-dividend in just 3 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Straco's shares before the 9th of May to receive the dividend, which will be paid on the 24th of May.

The company's upcoming dividend is S$0.02 a share, following on from the last 12 months, when the company distributed a total of S$0.015 per share to shareholders. Based on the last year's worth of payments, Straco stock has a trailing yield of around 3.1% on the current share price of S$0.485. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Straco

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. Straco paid out a comfortable 50% of its profit last year. 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. It distributed 26% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Straco'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 Straco paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Readers will understand then, why we're concerned to see Straco's earnings per share have dropped 9.2% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Straco has seen its dividend decline 2.8% per annum on average over the past 10 years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

The Bottom Line

Is Straco worth buying for its dividend? Straco has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. Overall, it's hard to get excited about Straco from a dividend perspective.

On that note, you'll want to research what risks Straco is facing. To help with this, we've discovered 2 warning signs for Straco (1 is a bit concerning!) that you ought to be aware of before buying the shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.