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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 Singapore Telecommunications Limited (SGX:Z74) is about to trade ex-dividend in the next 2 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Accordingly, Singapore Telecommunications investors that purchase the stock on or after the 2nd of August will not receive the dividend, which will be paid on the 17th of August.
The company's next dividend payment will be S$0.078 per share. Last year, in total, the company distributed S$0.099 to shareholders. Based on the last year's worth of payments, Singapore Telecommunications stock has a trailing yield of around 3.7% on the current share price of SGD2.66. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
Check out our latest analysis for Singapore Telecommunications
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. Singapore Telecommunications paid out 73% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out more than half (64%) of its free cash flow in the past year, which is within an average range for most companies.
It's positive to see that Singapore Telecommunications'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 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. With that in mind, we're discomforted by Singapore Telecommunications's 17% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.