We Wouldn't Be Too Quick To Buy NetLink NBN Trust (SGX:CJLU) Before It Goes Ex-Dividend

It looks like NetLink NBN Trust (SGX:CJLU) is about to go ex-dividend in the next 4 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 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. In other words, investors can purchase NetLink NBN Trust's shares before the 28th of May in order to be eligible for the dividend, which will be paid on the 11th of June.

The company's upcoming dividend is S$0.0268 a share, following on from the last 12 months, when the company distributed a total of S$0.054 per share to shareholders. Based on the last year's worth of payments, NetLink NBN Trust has a trailing yield of 6.0% on the current stock price of S$0.90. If you buy this business for its dividend, you should have an idea of whether NetLink NBN Trust's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

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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. An unusually high payout ratio of 219% of its profit suggests something is happening other than the usual distribution of profits to shareholders. 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 past year it paid out 181% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

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

See our latest analysis for NetLink NBN Trust

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at NetLink NBN Trust, with earnings per share up 4.1% on average over the last five years. With slack earnings growth and paying out substantially more than it reported in profit last year, this dividend is potentially at risk of being cut.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, seven years ago, NetLink NBN Trust has lifted its dividend by approximately 2.1% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

Is NetLink NBN Trust worth buying for its dividend? NetLink NBN Trust is paying out an uncomfortably high percentage of both earnings and cash flow as dividends, although at least earnings per share are growing somewhat. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

With that being said, if you're still considering NetLink NBN Trust as an investment, you'll find it beneficial to know what risks this stock is facing. Case in point: We've spotted 1 warning sign for NetLink NBN Trust you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.