Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Singapore Exchange Limited (SGX:S68) is about to go ex-dividend in just 3 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Singapore Exchange investors that purchase the stock on or after the 12th of October will not receive the dividend, which will be paid on the 20th of October.
The company's next dividend payment will be S$0.085 per share, and in the last 12 months, the company paid a total of S$0.34 per share. Based on the last year's worth of payments, Singapore Exchange stock has a trailing yield of around 3.5% on the current share price of SGD9.77. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
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. Singapore Exchange paid out 61% of its earnings to investors last year, a normal payout level for most businesses.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Singapore Exchange earnings per share are up 9.5% per annum over the last five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Singapore Exchange has lifted its dividend by approximately 2.0% a year on average.
The Bottom Line
Should investors buy Singapore Exchange for the upcoming dividend? Earnings per share have been growing at a reasonable rate, and the company is paying out a bit over half its earnings as dividends. We think there are likely better opportunities out there.
So if you want to do more digging on Singapore Exchange, you'll find it worthwhile knowing the risks that this stock faces. Our analysis shows 1 warning sign for Singapore Exchange and you should be aware of this before buying any 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.