Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Low Keng Huat (Singapore) Limited (SGX:F1E) is about to trade ex-dividend in the next three 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. 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 Low Keng Huat (Singapore)'s shares before the 7th of June to receive the dividend, which will be paid on the 21st of June.

The company's next dividend payment will be S$0.015 per share. Last year, in total, the company distributed S$0.015 to shareholders. Looking at the last 12 months of distributions, Low Keng Huat (Singapore) has a trailing yield of approximately 4.8% on its current stock price of S$0.31. 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.

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. Low Keng Huat (Singapore) paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Low Keng Huat (Singapore) didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Luckily it paid out just 5.0% of its free cash flow last year.

Click here to see how much of its profit Low Keng Huat (Singapore) paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Low Keng Huat (Singapore) was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Low Keng Huat (Singapore) has seen its dividend decline 6.7% 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.

We update our analysis on Low Keng Huat (Singapore) every 24 hours, so you can always get the latest insights on its financial health, here.

Final Takeaway

Is Low Keng Huat (Singapore) an attractive dividend stock, or better left on the shelf? It's hard to get used to Low Keng Huat (Singapore) paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. Bottom line: Low Keng Huat (Singapore) has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

With that being said, if you're still considering Low Keng Huat (Singapore) as an investment, you'll find it beneficial to know what risks this stock is facing. To help with this, we've discovered 3 warning signs for Low Keng Huat (Singapore) (2 make us uncomfortable!) that you ought to be aware of before buying the 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.