Singapore Telecommunications Limited (SGX:Z74) stock is about to trade ex-dividend in two days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Singapore Telecommunications' shares on or after the 2nd of August will not receive the dividend, which will be paid on the 17th of August.

The company's upcoming dividend is S$0.078 a share, following on from the last 12 months, when the company distributed a total of S$0.099 per share to shareholders. Calculating the last year's worth of payments shows that Singapore Telecommunications has a trailing yield of 3.7% on the current share price of SGD2.66. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Singapore Telecommunications

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. Singapore Telecommunications 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 Telecommunications generated enough free cash flow 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 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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see Singapore Telecommunications's earnings per share have dropped 17% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Singapore Telecommunications has seen its dividend decline 4.6% per annum on average over the past 10 years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

Final Takeaway

Is Singapore Telecommunications an attractive dividend stock, or better left on the shelf? While earnings per share are shrinking, it's encouraging to see that at least Singapore Telecommunications's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Singapore Telecommunications.

Although, if you're still interested in Singapore Telecommunications and want to know more, you'll find it very useful to know what risks this stock faces. Our analysis shows 1 warning sign for Singapore Telecommunications and you should be aware of this before buying any 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.