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Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Singapore Airlines Limited (SGX:C6L) is about to go ex-dividend in just 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. Therefore, if you purchase Singapore Airlines' shares on or after the 1st of August, you won't be eligible to receive the dividend, when it is paid on the 18th of August.
The company's next dividend payment will be S$0.28 per share, and in the last 12 months, the company paid a total of S$0.38 per share. Based on the last year's worth of payments, Singapore Airlines stock has a trailing yield of around 5.0% on the current share price of SGD7.53. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
View our latest analysis for Singapore Airlines
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. Last year Singapore Airlines paid out 107% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. A useful secondary check can be to evaluate whether Singapore Airlines generated enough free cash flow to afford its dividend. The good news is it paid out just 4.0% of its free cash flow in the last year.
It's good to see that while Singapore Airlines's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Singapore Airlines's earnings per share have fallen at approximately 18% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.