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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 Singapore Airlines Limited (SGX:C6L) is about to go ex-dividend in just four 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. Therefore, if you purchase Singapore Airlines' shares on or after the 6th of December, you won't be eligible to receive the dividend, when it is paid on the 22nd of December.
The company's upcoming dividend is S$0.10 a share, following on from the last 12 months, when the company distributed a total of S$0.38 per share to shareholders. Looking at the last 12 months of distributions, Singapore Airlines has a trailing yield of approximately 6.0% on its current stock price of SGD6.34. If you buy this business for its dividend, you should have an idea of whether Singapore Airlines's dividend is reliable and sustainable. So we need to investigate whether Singapore Airlines can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Singapore Airlines
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. Singapore Airlines paid out 73% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Singapore Airlines generated enough free cash flow to afford its dividend. It paid out 21% 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 the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Singapore Airlines's earnings per share have fallen at approximately 10% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.