Don't Buy APAC Resources Limited (HKG:1104) For Its Next Dividend Without Doing These Checks

It looks like APAC Resources Limited (HKG:1104) is about to go ex-dividend in the next 3 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled 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. Thus, you can purchase APAC Resources' shares before the 16th of November in order to receive the dividend, which the company will pay on the 15th of January.

The company's next dividend payment will be HK$0.10 per share, and in the last 12 months, the company paid a total of HK$0.10 per share. Last year's total dividend payments show that APAC Resources has a trailing yield of 9.4% on the current share price of HK$1.06. 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! So we need to investigate whether APAC Resources can afford its dividend, and if the dividend could grow.

See our latest analysis for APAC Resources

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. APAC Resources reported a loss last year, so it's not great to see that it has continued paying a dividend. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If APAC Resources 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. Dividends consumed 66% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

Click here to see how much of its profit APAC Resources paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. APAC Resources 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.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past six years, APAC Resources has increased its dividend at approximately 37% a year on average.

We update our analysis on APAC Resources every 24 hours, so you can always get the latest insights on its financial health, here.

To Sum It Up

From a dividend perspective, should investors buy or avoid APAC Resources? It's hard to get used to APAC Resources paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

With that being said, if you're still considering APAC Resources as an investment, you'll find it beneficial to know what risks this stock is facing. For example, we've found 2 warning signs for APAC Resources that we recommend you consider before investing in the business.

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.