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 CapitaLand India Trust (SGX:CY6U) is about to go ex-dividend in just three 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase CapitaLand India Trust's shares before the 24th of February in order to be eligible for the dividend, which will be paid on the 6th of March.
The company's upcoming dividend is S$0.039 a share, following on from the last 12 months, when the company distributed a total of S$0.082 per share to shareholders. Looking at the last 12 months of distributions, CapitaLand India Trust has a trailing yield of approximately 7.0% on its current stock price of SGD1.17. If you buy this business for its dividend, you should have an idea of whether CapitaLand India Trust's dividend is reliable and sustainable. So we need to investigate whether CapitaLand India Trust can afford its dividend, and if the dividend could grow.
See our latest analysis for CapitaLand India Trust
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 69% of its earnings to investors last year, a normal payout level for most businesses. 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. Dividends consumed 64% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
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?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. So we're not too excited that CapitaLand India Trust's earnings are down 4.2% a year over the past five years.
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 3.3% a year on average. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.
Is CapitaLand India Trust worth buying for its dividend? While earnings per share are shrinking, it's encouraging to see that at least CapitaLand India Trust's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. Bottom line: CapitaLand India Trust has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
Although, if you're still interested in CapitaLand India Trust and want to know more, you'll find it very useful to know what risks this stock faces. To help with this, we've discovered 4 warning signs for CapitaLand India Trust (1 shouldn't be ignored!) that you ought to be aware of before buying the shares.
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.