Readers hoping to buy Tai Sin Electric Limited (SGX:500) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, Tai Sin Electric investors that purchase the stock on or after the 31st of October will not receive the dividend, which will be paid on the 9th of November.

The company's upcoming dividend is S$0.016 a share, following on from the last 12 months, when the company distributed a total of S$0.024 per share to shareholders. Based on the last year's worth of payments, Tai Sin Electric stock has a trailing yield of around 5.9% on the current share price of SGD0.4. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Tai Sin Electric

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Tai Sin Electric paid out more than half (65%) 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 paid out 83% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

It's positive to see that Tai Sin Electric'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.

Click here to see how much of its profit Tai Sin Electric 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's not encouraging to see that Tai Sin Electric's earnings are effectively flat 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. A payout ratio of 65% looks like a tacit signal from management that reinvestment opportunities in the business are low. In line with limited earnings growth in recent years, this is not the most appealing combination.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Tai Sin Electric's dividend payments are broadly unchanged compared to where they were 10 years ago.

The Bottom Line

Is Tai Sin Electric worth buying for its dividend? Earnings per share have barely grown, and although Tai Sin Electric paid out over half its earnings and free cash flow last year, the payout ratios are within a normal range for most companies. In summary, while it has some positive characteristics, we're not inclined to race out and buy Tai Sin Electric today.

With that being said, if dividends aren't your biggest concern with Tai Sin Electric, you should know about the other risks facing this business. For example - Tai Sin Electric has 2 warning signs we think you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.