Readers hoping to buy Spindex Industries Limited (SGX:564) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, Spindex Industries investors that purchase the stock on or after the 6th of November will not receive the dividend, which will be paid on the 18th of November.

The company's next dividend payment will be S$0.027 per share, and in the last 12 months, the company paid a total of S$0.027 per share. Based on the last year's worth of payments, Spindex Industries stock has a trailing yield of around 2.7% on the current share price of S$1.00. If you buy this business for its dividend, you should have an idea of whether Spindex Industries's dividend is reliable and sustainable. So we need to investigate whether Spindex Industries can afford its dividend, and if the dividend could grow.

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. Spindex Industries paid out just 20% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. What's good is that dividends were well covered by free cash flow, with the company paying out 4.2% of its cash flow last year.

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 how much of its profit Spindex Industries paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. 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 Spindex Industries's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Growth has been anaemic. Yet with more than 75% of its earnings being kept in the business, there is ample room to reinvest in growth or lift the payout ratio - either of which could increase the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Spindex Industries has delivered 2.1% dividend growth per year on average over the past 10 years.

Final Takeaway

Should investors buy Spindex Industries for the upcoming dividend? Earnings per share have been flat over this time, but we're intrigued to see that Spindex Industries is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. Generally we like to see both low payout ratios and strong earnings per share growth, but Spindex Industries is halfway there. There's a lot to like about Spindex Industries, and we would prioritise taking a closer look at it.

While it's tempting to invest in Spindex Industries for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 2 warning signs for Spindex Industries (1 is potentially serious!) that you ought to be aware of before buying the shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.