Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see SBS Transit Ltd (SGX:S61) is about to trade ex-dividend in the next 3 days. Investors can purchase shares before the 29th of May in order to be eligible for this dividend, which will be paid on the 8th of June.

SBS Transit's next dividend payment will be S$0.059 per share, on the back of last year when the company paid a total of S$0.13 to shareholders. Calculating the last year's worth of payments shows that SBS Transit has a trailing yield of 4.9% on the current share price of SGD2.68. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for SBS Transit

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. SBS Transit paid out more than half (50%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year, it paid out more than three-quarters (81%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

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 how much of its profit SBS Transit paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. 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 SBS Transit's earnings have been skyrocketing, up 41% per annum for the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. SBS Transit has delivered 4.0% dividend growth per year on average over the past ten years. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.