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CapitaLand Commercial Trust (SGX:C61U) is about to trade ex-dividend in the next 3 days. You can purchase shares before the 25th of July in order to receive the dividend, which the company will pay on the 29th of August.

CapitaLand Commercial Trust's next dividend payment will be S$0.05 per share. Last year, in total, the company distributed S$0.088 to shareholders. Based on the last year's worth of payments, CapitaLand Commercial Trust stock has a trailing yield of around 4.1% on the current share price of SGD2.15. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for CapitaLand Commercial Trust

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. CapitaLand Commercial Trust distributed an unsustainably high 113% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. For regulatory reasons, it's not uncommon to see REITs paying out around 100% of their earnings. However, we feel CapitaLand Commercial Trust's payout ratio is still too high, and we wonder if the dividend is being funded by debt. A useful secondary check can be to evaluate whether CapitaLand Commercial Trust generated enough free cash flow to afford its dividend. CapitaLand Commercial Trust paid out more free cash flow than it generated - 113%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

Cash is slightly more important than profit from a dividend perspective, but given CapitaLand Commercial Trust's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.

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

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's not ideal to see CapitaLand Commercial Trust's earnings per share have been shrinking at 4.5% a year over the previous five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. CapitaLand Commercial Trust has seen its dividend decline 1.6% per annum on average over the past 10 years, which is not great to see.

The Bottom Line

Has CapitaLand Commercial Trust got what it takes to maintain its dividend payments? It's looking like an unattractive opportunity, with its earnings per share declining, while, paying out an uncomfortably high percentage of both its profits (113%) and cash flow (113%) 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 CapitaLand Commercial Trust.

Ever wonder what the future holds for CapitaLand Commercial Trust? See what the 19 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.