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 CapitaLand India Trust (SGX:CY6U) is about to go ex-dividend in just 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, CapitaLand India Trust investors that purchase the stock on or after the 19th of August will not receive the dividend, which will be paid on the 28th of August.

The company's upcoming dividend is S$0.0364 a share, following on from the last 12 months, when the company distributed a total of S$0.067 per share to shareholders. Looking at the last 12 months of distributions, CapitaLand India Trust has a trailing yield of approximately 6.1% on its current stock price of S$1.10. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for CapitaLand India Trust

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see CapitaLand India Trust paying out a modest 50% of its earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It distributed 49% of its free cash flow as dividends, a comfortable payout level for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Readers will understand then, why we're concerned to see CapitaLand India Trust's earnings per share have dropped 7.0% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

CapitaLand India Trust also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.