Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see CapitaLand India Trust (SGX:CY6U) is about to trade ex-dividend in the next four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order 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. Thus, you can purchase CapitaLand India Trust's shares before the 19th of August in order to receive the dividend, which the company will pay on the 28th of August.

The company's next dividend payment will be S$0.0364 per share, and in the last 12 months, the company paid a total of S$0.067 per share. Calculating the last year's worth of payments shows that CapitaLand India Trust has a trailing yield of 6.1% on the current share price of S$1.10. If you buy this business for its dividend, you should have an idea of whether CapitaLand India Trust's dividend is reliable and sustainable. As a result, readers should always check whether CapitaLand India Trust has been able to grow its dividends, or if the dividend might be cut.

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. That's why it's good to see CapitaLand India Trust paying out a modest 50% of its earnings. A useful secondary check can be to evaluate whether CapitaLand India Trust generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 49% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that CapitaLand India Trust's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Readers will understand then, why we're concerned to see CapitaLand India Trust's earnings per share have dropped 7.0% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

CapitaLand India Trust also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. It's hard to grow dividends per share when a company keeps creating new shares.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. CapitaLand India Trust has delivered an average of 4.4% per year annual increase in its dividend, based on the past 10 years of dividend payments.

To Sum It Up

Should investors buy CapitaLand India Trust for the upcoming dividend? CapitaLand India Trust has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. We've identified 3 warning signs with CapitaLand India Trust (at least 1 which is concerning), and understanding these should be part of your investment process.

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.