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 4 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Thus, you can purchase CapitaLand India Trust's shares before the 19th of February in order to receive the dividend, which the company will pay on the 28th of February.
The company's next dividend payment will be S$0.0309 per share, on the back of last year when the company paid a total of S$0.062 to shareholders. Last year's total dividend payments show that CapitaLand India Trust has a trailing yield of 5.5% on the current share price of S$1.12. If you buy this business for its dividend, you should have an idea of whether CapitaLand India Trust's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. CapitaLand India Trust paid out more than half (55%) 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. It distributed 40% of its free cash flow as dividends, a comfortable payout level for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
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. CapitaLand India Trust's earnings per share have fallen at approximately 11% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
We'd also point out that CapitaLand India Trust issued a meaningful number of new shares in the past year. 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. Since the start of our data, 10 years ago, CapitaLand India Trust has lifted its dividend by approximately 3.7% a year on average. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.
To Sum It Up
From a dividend perspective, should investors buy or avoid CapitaLand India Trust? We're not enthused by the declining earnings per share, although at least the company's payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. Overall, it's hard to get excited about CapitaLand India Trust from a dividend perspective.
With that being said, if dividends aren't your biggest concern with CapitaLand India Trust, you should know about the other risks facing this business. To that end, you should learn about the 4 warning signs we've spotted with CapitaLand India Trust (including 1 which doesn't sit too well with us).
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.