Venture Corporation Limited (SGX:V03) stock is about to trade ex-dividend in 3 days time. If you purchase the stock on or after the 5th of September, you won't be eligible to receive this dividend, when it is paid on the 19th of September.

Venture's next dividend payment will be S$0.20 per share. Last year, in total, the company distributed S$0.70 to shareholders. Based on the last year's worth of payments, Venture has a trailing yield of 4.6% on the current stock price of SGD15.18. 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 check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Venture

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. Venture paid out more than half (54%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Venture generated enough free cash flow to afford its dividend. Over the last year it paid out 66% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Venture'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?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Venture's earnings have been skyrocketing, up 22% per annum for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Venture has delivered an average of 3.4% per year annual increase in its dividend, based on the past 10 years of dividend payments. Earnings per share have been growing much quicker than dividends, potentially because Venture is keeping back more of its profits to grow the business.

To Sum It Up

From a dividend perspective, should investors buy or avoid Venture? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. That's why we're glad to see Venture's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 54% and 66% respectively. In summary, it's hard to get excited about Venture from a dividend perspective.

Curious what other investors think of Venture? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow .

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.