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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Jardine Cycle & Carriage Limited (SGX:C07) is about to trade ex-dividend in the next 4 days. The ex-dividend date is usually set to be one business day 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase Jardine Cycle & Carriage's shares before the 29th of May to receive the dividend, which will be paid on the 18th of June.
The company's next dividend payment will be US$0.90 per share, and in the last 12 months, the company paid a total of US$1.18 per share. Based on the last year's worth of payments, Jardine Cycle & Carriage stock has a trailing yield of around 5.8% on the current share price of S$27.55. 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 investigate whether Jardine Cycle & Carriage can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Jardine Cycle & Carriage
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Jardine Cycle & Carriage's payout ratio is modest, at just 38% of profit. A useful secondary check can be to evaluate whether Jardine Cycle & Carriage generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 47% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that Jardine Cycle & Carriage'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. It's encouraging to see Jardine Cycle & Carriage has grown its earnings rapidly, up 24% a year for the past five years. Jardine Cycle & Carriage is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.