Should You Buy Baker Technology Limited (SGX:BTP) For Its Upcoming Dividend?

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 Baker Technology Limited (SGX:BTP) is about to go ex-dividend in just two days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. 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. Thus, you can purchase Baker Technology's shares before the 8th of May in order to receive the dividend, which the company will pay on the 23rd 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$0.02 per share to shareholders. Last year's total dividend payments show that Baker Technology has a trailing yield of 3.5% on the current share price of S$0.57. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

We've discovered 2 warning signs about Baker Technology. View them for free.

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. Baker Technology has a low and conservative payout ratio of just 22% of its income after tax. 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. Luckily it paid out just 9.1% of its free cash flow last year.

It's positive to see that Baker Technology'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.

View our latest analysis for Baker Technology

Click here to see how much of its profit Baker Technology paid out over the last 12 months.

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Baker Technology's earnings have been skyrocketing, up 61% per annum for the past five years. Baker Technology earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky "beep-beep". We also like that it is reinvesting most of its profits in its business.'

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Baker Technology has seen its dividend decline 8.8% per annum on average over the past 10 years, which is not great to see. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

To Sum It Up

Is Baker Technology an attractive dividend stock, or better left on the shelf? It's great that Baker Technology is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. There's a lot to like about Baker Technology, and we would prioritise taking a closer look at it.

On that note, you'll want to research what risks Baker Technology is facing. For example - Baker Technology has 2 warning signs we think you should be aware of.

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.