It looks like Stamford Tyres Corporation Limited (SGX:S29) is about to go ex-dividend in the next four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order 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. Therefore, if you purchase Stamford Tyres' shares on or after the 13th of September, you won't be eligible to receive the dividend, when it is paid on the 23rd of September.

The company's next dividend payment will be S$0.015 per share, on the back of last year when the company paid a total of S$0.015 to shareholders. Calculating the last year's worth of payments shows that Stamford Tyres has a trailing yield of 6.5% on the current share price of SGD0.23. If you buy this business for its dividend, you should have an idea of whether Stamford Tyres's dividend is reliable and sustainable. So we need to investigate whether Stamford Tyres can afford its dividend, and if the dividend could grow.

See our latest analysis for Stamford Tyres

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year Stamford Tyres paid out 92% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. 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. Stamford Tyres paid a dividend despite reporting negative free cash flow last year. That's typically a bad combination and - if this were more than a one-off - not sustainable.

It's good to see that while Stamford Tyres'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 how much of its profit Stamford Tyres paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Stamford Tyres's earnings per share have fallen at approximately 14% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Stamford Tyres's dividend payments are effectively flat on where they were 10 years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.

To Sum It Up

From a dividend perspective, should investors buy or avoid Stamford Tyres? Not only are earnings per share declining, but Stamford Tyres is paying out an uncomfortably high percentage of both its earnings and cashflow to shareholders as dividends. This is a clearly suboptimal combination that usually suggests the dividend is at risk of being cut. If not now, then perhaps in the future. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Stamford Tyres.

With that in mind though, if the poor dividend characteristics of Stamford Tyres don't faze you, it's worth being mindful of the risks involved with this business. To that end, you should learn about the 5 warning signs we've spotted with Stamford Tyres (including 3 which are significant).

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.