Readers hoping to buy Allan International Holdings Limited (HKG:684) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Ex-dividend means that investors that purchase the stock on or after the 31st of August will not receive this dividend, which will be paid on the 28th of September.
Allan International Holdings’s upcoming dividend is HK$0.07 a share, following on from the last 12 months, when the company distributed a total of HK$0.09 per share to shareholders. Looking at the last 12 months of distributions, Allan International Holdings has a trailing yield of approximately 7.0% on its current stock price of HK$1.29. We love seeing companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our golden goose! That’s why we should always check whether the dividend payments appear sustainable, and if the company is growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Allan International Holdings paid a dividend last year despite being unprofitable. This might be a one-off event, but it’s not a sustainable state of affairs in the long run. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If Allan International Holdings didn’t generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. It paid out 16% of its free cash flow as dividends last year, which is conservatively low.
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. Allan International Holdings was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. Allan International Holdings has seen its dividend decline 9.0% per annum on average over the past 10 years, which is not great to see. While it’s not great that earnings and dividends per share have fallen in recent years, we’re encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.
Is Allan International Holdings an attractive dividend stock, or better left on the shelf? It’s hard to get used to Allan International Holdings paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. With the way things are shaping up from a dividend perspective, we’d be inclined to steer clear of Allan International Holdings.
Although, if you’re still interested in Allan International Holdings and want to know more, you’ll find it very useful to know what risks this stock faces. Our analysis shows 3 warning signs for Allan International Holdings that we strongly recommend you have a look at before investing in the company.
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.
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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. 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.
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