Baker Technology Limited (SGX:BTP) is about to trade ex-dividend in the next 4 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. In other words, investors can purchase Baker Technology's shares before the 7th of May in order to be eligible for the dividend, which will be paid on the 21st of May.

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. Based on the last year's worth of payments, Baker Technology stock has a trailing yield of around 2.7% on the current share price of S$0.56. If you buy this business for its dividend, you should have an idea of whether Baker Technology's dividend is reliable and sustainable. As a result, readers should always check whether Baker Technology has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Baker Technology

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Baker Technology paid out a comfortable 37% of its profit last year. A useful secondary check can be to evaluate whether Baker Technology generated enough free cash flow to afford its dividend. The good news is it paid out just 7.1% of its free cash flow in the last year.

It's positive to see that Baker Technology'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 Baker Technology paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Baker Technology'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. Baker Technology's dividend payments per share have declined at 25% per year on average over the past 10 years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

Final Takeaway

Has Baker Technology got what it takes to maintain its dividend payments? Baker Technology has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Baker Technology's dividend merits.

While it's tempting to invest in Baker Technology for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 3 warning signs for Baker Technology and you should be aware of these before buying any 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.