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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 Sembcorp Industries Ltd (SGX:U96) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled 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. Meaning, you will need to purchase Sembcorp Industries' shares before the 14th of August to receive the dividend, which will be paid on the 22nd of August.
The company's upcoming dividend is S$0.06 a share, following on from the last 12 months, when the company distributed a total of S$0.12 per share to shareholders. Based on the last year's worth of payments, Sembcorp Industries stock has a trailing yield of around 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.
Check out our latest analysis for Sembcorp Industries
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Fortunately Sembcorp Industries's payout ratio is modest, at just 26% of profit. 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. It paid out more than half (73%) of its free cash flow in the past year, which is within an average 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?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Sembcorp Industries has grown its earnings rapidly, up 26% a year for the past five years.