It looks like ComfortDelGro Corporation Limited (SGX:C52) is about to go ex-dividend in the next 4 days. You will need to purchase shares before the 20th of August to receive the dividend, which will be paid on the 28th of August.

ComfortDelGro's upcoming dividend is S$0.045 a share, following on from the last 12 months, when the company distributed a total of S$0.10 per share to shareholders. Calculating the last year's worth of payments shows that ComfortDelGro has a trailing yield of 4.2% on the current share price of SGD2.53. 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 investigate whether ComfortDelGro can afford its dividend, and if the dividend could grow.

View our latest analysis for ComfortDelGro

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. ComfortDelGro paid out more than half (75%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether ComfortDelGro generated enough free cash flow to afford its dividend. It paid out 105% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.

While ComfortDelGro's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to ComfortDelGro's ability to maintain its dividend.

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see ComfortDelGro earnings per share are up 2.8% per annum over the last five years. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. ComfortDelGro has delivered an average of 8.1% per year annual increase in its dividend, based on the past 10 years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Is ComfortDelGro an attractive dividend stock, or better left on the shelf? Earnings per share have grown somewhat, although ComfortDelGro paid out over half its profits and the dividend was not well covered by free cash flow. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

Wondering what the future holds for ComfortDelGro? See what the 14 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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.