Micro-Mechanics (Holdings) Ltd. (SGX:5DD) stock is about to trade ex-dividend in 3 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Meaning, you will need to purchase Micro-Mechanics (Holdings)'s shares before the 7th of November to receive the dividend, which will be paid on the 18th of November.

The company's next dividend payment will be S$0.03 per share, on the back of last year when the company paid a total of S$0.06 to shareholders. Last year's total dividend payments show that Micro-Mechanics (Holdings) has a trailing yield of 3.6% on the current share price of S$1.69. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Micro-Mechanics (Holdings)

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. Last year, Micro-Mechanics (Holdings) paid out 99% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. A useful secondary check can be to evaluate whether Micro-Mechanics (Holdings) generated enough free cash flow to afford its dividend. Dividends consumed 68% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's good to see that while Micro-Mechanics (Holdings)'s dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.

Click here to see how much of its profit Micro-Mechanics (Holdings) paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Micro-Mechanics (Holdings)'s earnings per share have fallen at approximately 8.3% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.