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 SUTL Enterprise Limited (SGX:BHU) is about to go ex-dividend in just 3 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 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. In other words, investors can purchase SUTL Enterprise's shares before the 1st of June in order to be eligible for the dividend, which will be paid on the 19th of June.

The company's upcoming dividend is S$0.05 a share, following on from the last 12 months, when the company distributed a total of S$0.05 per share to shareholders. Based on the last year's worth of payments, SUTL Enterprise stock has a trailing yield of around 8.7% on the current share price of SGD0.575. 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 SUTL Enterprise can afford its dividend, and if the dividend could grow.

Check out our latest analysis for SUTL Enterprise

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. SUTL Enterprise is paying out an acceptable 57% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether SUTL Enterprise generated enough free cash flow to afford its dividend. It paid out 16% of its free cash flow as dividends last year, which is conservatively low.

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 SUTL Enterprise paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're not enthused to see that SUTL Enterprise's earnings per share have remained effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last six years, SUTL Enterprise has lifted its dividend by approximately 16% a year on average.

The Bottom Line

Has SUTL Enterprise got what it takes to maintain its dividend payments? Earnings per share have been flat and SUTL Enterprise's dividend payouts are within reasonable limits; without a sharp decline in earnings we feel that the dividend is likely somewhat sustainable. Overall, it's hard to get excited about SUTL Enterprise from a dividend perspective.

So while SUTL Enterprise looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. We've identified 3 warning signs with SUTL Enterprise (at least 1 which is a bit concerning), and understanding these should be part of your investment process.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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