Do These 3 Checks Before Buying Singapore Technologies Engineering Ltd (SGX:S63) For Its Upcoming Dividend

Singapore Technologies Engineering Ltd (SGX:S63) stock is about to trade ex-dividend in 4 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase Singapore Technologies Engineering’s shares before the 20th of November to receive the dividend, which will be paid on the 1st of December.

The company’s upcoming dividend is S$0.04 a share, following on from the last 12 months, when the company distributed a total of S$0.16 per share to shareholders. Calculating the last year’s worth of payments shows that Singapore Technologies Engineering has a trailing yield of 4.2% on the current share price of SGD3.82. If you buy this business for its dividend, you should have an idea of whether Singapore Technologies Engineering’s dividend is reliable and sustainable. As a result, readers should always check whether Singapore Technologies Engineering has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Singapore Technologies Engineering

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 Technologies Engineering paid out 93% of its earnings, which is more than we’re comfortable with, unless there are mitigating circumstances. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Singapore Technologies Engineering paid out more free cash flow than it generated – 130%, to be precise – last year, which we think is concerningly high. It’s hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we’d wonder how the company justifies this payout level.

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As Singapore Technologies Engineering’s dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.

Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we’re not overly excited about Singapore Technologies Engineering’s flat earnings 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. Minimal earnings growth, combined with concerningly high payout ratios suggests that Singapore Technologies Engineering is unlikely to grow the dividend much in future, and indeed the payment could be vulnerable to a cut.

Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Singapore Technologies Engineering’s dividend payments are effectively flat on where they were 10 years ago.

The Bottom Line

Is Singapore Technologies Engineering worth buying for its dividend? Singapore Technologies Engineering is paying out an uncomfortably high percentage of both earnings and cash flow as dividends, at the same time as its earnings per share are struggling to grow. It’s not that we think Singapore Technologies Engineering is a bad company, but these characteristics don’t generally lead to outstanding dividend performance.

With that being said, if you’re still considering Singapore Technologies Engineering as an investment, you’ll find it beneficial to know what risks this stock is facing. To help with this, we’ve discovered 2 warning signs for Singapore Technologies Engineering that you should be aware of before investing in their shares.

Generally, we wouldn’t recommend just buying the first dividend stock you see. Here’s a curated list of interesting stocks that are strong dividend payers.

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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.