Silverlake Axis Ltd (SGX:5CP) stock is about to trade ex-dividend in 4 days time. This means that investors who purchase shares on or after the 4th of November will not receive the dividend, which will be paid on the 15th of November.
Silverlake Axis's next dividend payment will be S$0.007 per share. Last year, in total, the company distributed S$0.05 to shareholders. Last year's total dividend payments show that Silverlake Axis has a trailing yield of 6.2% on the current share price of SGD0.45. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Silverlake Axis has been able to grow its dividends, or if the dividend might be cut.
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. Silverlake Axis paid out more than half (59%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Fortunately, it paid out only 39% of its free cash flow in the past year.
It's positive to see that Silverlake Axis'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.
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 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 Silverlake Axis's flat earnings over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. Earnings growth has been slim and the company is paying out more than half of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Silverlake Axis has delivered 22% dividend growth per year on average over the past ten years.
To Sum It Up
Has Silverlake Axis got what it takes to maintain its dividend payments? It's unfortunate that earnings per share have not grown, and we'd note that Silverlake Axis is paying out lower percentage of its cashflow than its profit, but overall the dividend looks well covered by earnings. In summary, while it has some positive characteristics, we're not inclined to race out and buy Silverlake Axis today.
Wondering what the future holds for Silverlake Axis? See what the three analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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