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It Might Be Better To Avoid Singapore Technologies Engineering Ltd's (SGX:S63) Upcoming 1.2% Dividend

Simply Wall St

Singapore Technologies Engineering Ltd (SGX:S63) stock is about to trade ex-dividend in 4 days time. You can purchase shares before the 21st of August in order to receive the dividend, which the company will pay on the 3rd of September.

Singapore Technologies Engineering's next dividend payment will be S$0.05 per share, and in the last 12 months, the company paid a total of S$0.15 per share. Based on the last year's worth of payments, Singapore Technologies Engineering stock has a trailing yield of around 3.7% on the current share price of SGD4.04. If you buy this business for its dividend, you should have an idea of whether Singapore Technologies Engineering's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Singapore Technologies Engineering

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year Singapore Technologies Engineering paid out 92% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year, it paid out dividends equivalent to 238% of what it generated in free cash flow, a disturbingly high percentage. Unless there were something in the business we're not grasping, this could signal a risk that the dividend may have to be cut in the future.

Cash is slightly more important than profit from a dividend perspective, but given Singapore Technologies Engineering's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.

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

SGX:S63 Historical Dividend Yield, August 16th 2019

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. That's why it's not ideal to see Singapore Technologies Engineering's earnings per share have been shrinking at 2.8% a year over the previous five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Singapore Technologies Engineering's dividend payments per share have declined at 0.5% per year on average over the past 10 years, which is uninspiring.

Final Takeaway

Should investors buy Singapore Technologies Engineering for the upcoming dividend? Not only are earnings per share declining, but Singapore Technologies Engineering is paying out an uncomfortably high percentage of both its earnings and cashflow to shareholders as dividends. Unless there are grounds to believe a turnaround is imminent, this is one of the least attractive dividend stocks under this analysis. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Singapore Technologies Engineering.

Wondering what the future holds for Singapore Technologies Engineering? See what the 14 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.