Readers hoping to buy Keppel Infrastructure Trust (SGX:A7RU) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. This means that investors who purchase Keppel Infrastructure Trust's shares on or after the 2nd of August will not receive the dividend, which will be paid on the 13th of August.

The company's next dividend payment will be S$0.0195 per share, and in the last 12 months, the company paid a total of S$0.039 per share. Based on the last year's worth of payments, Keppel Infrastructure Trust has a trailing yield of 8.0% on the current stock price of S$0.48. If you buy this business for its dividend, you should have an idea of whether Keppel Infrastructure Trust's dividend is reliable and sustainable. As a result, readers should always check whether Keppel Infrastructure Trust has been able to grow its dividends, or if the dividend might be cut.

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. Last year, Keppel Infrastructure Trust paid out 244% of its profit to shareholders in the form of dividends. This is not sustainable behaviour and requires a closer look on behalf of the purchaser. 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. Over the last year, it paid out more than three-quarters (83%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's good to see that while Keppel Infrastructure Trust's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

Click here to see how much of its profit Keppel Infrastructure Trust paid out over the last 12 months.

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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's not encouraging to see that Keppel Infrastructure Trust's earnings are effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Keppel Infrastructure Trust has delivered an average of 1.6% per year annual increase in its dividend, based on the past 10 years of dividend payments.

The Bottom Line

Should investors buy Keppel Infrastructure Trust for the upcoming dividend? Earnings per share have barely moved in recent times, and the company is paying out an uncomfortably high percentage of its income. Fortunately its cash generation was somewhat stronger. Bottom line: Keppel Infrastructure Trust 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 Keppel Infrastructure Trust as an investment, you'll find it beneficial to know what risks this stock is facing. We've identified 2 warning signs with Keppel Infrastructure Trust (at least 1 which is a bit concerning), and understanding them should be part of your investment process.

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.

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