Credit Bureau Asia Limited (SGX:TCU) stock is about to trade ex-dividend in three days. 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 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 Credit Bureau Asia's shares before the 4th of May in order to be eligible for the dividend, which will be paid on the 19th of May.

The company's next dividend payment will be S$0.017 per share. Last year, in total, the company distributed S$0.034 to shareholders. Calculating the last year's worth of payments shows that Credit Bureau Asia has a trailing yield of 3.5% on the current share price of SGD0.98. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Credit Bureau Asia can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Credit Bureau Asia

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. Credit Bureau Asia paid out 93% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. 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 80% 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 good to see that while Credit Bureau Asia's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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. With that in mind, we're encouraged by the steady growth at Credit Bureau Asia, with earnings per share up 7.2% on average over the last five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. It looks like the Credit Bureau Asia dividends are largely the same as they were two years ago.

The Bottom Line

Should investors buy Credit Bureau Asia for the upcoming dividend? While earnings per share have been growing slowly, Credit Bureau Asia is paying out an uncomfortably high percentage of its earnings. However it did pay out a lower percentage of its cashflow. Bottom line: Credit Bureau Asia has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

So if you're still interested in Credit Bureau Asia despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. To help with this, we've discovered 1 warning sign for Credit Bureau Asia that you should be aware of before investing in their 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.