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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 two 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. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Sembcorp Industries' shares on or after the 29th of April will not receive the dividend, which will be paid on the 9th of May.
The company's upcoming dividend is S$0.08 a share, following on from the last 12 months, when the company distributed a total of S$0.16 per share to shareholders. Looking at the last 12 months of distributions, Sembcorp Industries has a trailing yield of approximately 2.9% on its current stock price of S$5.45. 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 Sembcorp Industries
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. Sembcorp Industries paid out just 23% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Sembcorp Industries generated enough free cash flow to afford its dividend. Luckily it paid out just 25% of its free cash flow last year.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Sembcorp Industries has grown its earnings rapidly, up 27% a year for the past five years. Sembcorp Industries looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.