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 Frasers Property Limited (SGX:TQ5) is about to go ex-dividend in just four 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Frasers Property investors that purchase the stock on or after the 29th of January will not receive the dividend, which will be paid on the 16th of February.

The company's upcoming dividend is S$0.045 a share, following on from the last 12 months, when the company distributed a total of S$0.045 per share to shareholders. Calculating the last year's worth of payments shows that Frasers Property has a trailing yield of 4.8% on the current share price of SGD0.94. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Frasers Property

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Frasers Property distributed an unsustainably high 143% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. A useful secondary check can be to evaluate whether Frasers Property generated enough free cash flow to afford its dividend. The good news is it paid out just 8.2% of its free cash flow in the last year.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Frasers Property fortunately did generate enough cash to fund its dividend. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Frasers Property's earnings have collapsed faster than Wile E Coyote's schemes to trap the Road Runner; down a tremendous 33% 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. Frasers Property has seen its dividend decline 0.6% per annum on average over the past 10 years, which is not great to see.

Final Takeaway

From a dividend perspective, should investors buy or avoid Frasers Property? It's never great to see earnings per share declining, especially when a company is paying out 143% of its profit as dividends, which we feel is uncomfortably high. Yet cashflow was much stronger, which makes us wonder if there are some large timing issues in Frasers Property's cash flows, or perhaps the company has written down some assets aggressively, reducing its income. Bottom line: Frasers Property has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

So if you're still interested in Frasers Property despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example, we've found 4 warning signs for Frasers Property (1 is significant!) that deserve your attention before investing in 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.