Be Sure To Check Out Sembcorp Industries Ltd (SGX:U96) Before It Goes Ex-Dividend

Sembcorp Industries Ltd (SGX:U96) stock is about to trade ex-dividend in four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Sembcorp Industries' shares before the 14th of August in order to receive the dividend, which the company will pay on the 22nd of August.

The company's next dividend payment will be S$0.06 per share, and in the last 12 months, the company paid a total of S$0.12 per share. Calculating the last year's worth of payments shows that Sembcorp Industries has a trailing yield of 2.5% on the current share price of S$4.75. 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! We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Sembcorp Industries

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. That's why it's good to see Sembcorp Industries paying out a modest 26% of its earnings. A useful secondary check can be to evaluate whether Sembcorp Industries generated enough free cash flow to afford its dividend. Over the last year it paid out 73% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Sembcorp Industries'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 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. That's why it's comforting to see Sembcorp Industries's earnings have been skyrocketing, up 26% per annum for the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Sembcorp Industries's dividend payments per share have declined at 2.2% per year on average over the past 10 years, which is uninspiring. Sembcorp Industries is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

To Sum It Up

Is Sembcorp Industries an attractive dividend stock, or better left on the shelf? Earnings per share have grown at a nice rate in recent times and over the last year, Sembcorp Industries paid out less than half its earnings and a bit over half its free cash flow. There's a lot to like about Sembcorp Industries, and we would prioritise taking a closer look at it.

While it's tempting to invest in Sembcorp Industries for the dividends alone, you should always be mindful of the risks involved. For example, we've found 1 warning sign for Sembcorp Industries that we recommend you consider before investing in the business.

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.