Here's Why We're Wary Of Buying Million Hope Industries Holdings' (HKG:1897) For Its Upcoming Dividend

Million Hope Industries Holdings Limited (HKG:1897) stock is about to trade ex-dividend in 3 days. Investors can purchase shares before the 4th of December in order to be eligible for this dividend, which will be paid on the 18th of December.

Million Hope Industries Holdings's upcoming dividend is HK$0.016 a share, following on from the last 12 months, when the company distributed a total of HK$0.04 per share to shareholders. Last year's total dividend payments show that Million Hope Industries Holdings has a trailing yield of 5.9% on the current share price of HK$0.68. If you buy this business for its dividend, you should have an idea of whether Million Hope Industries Holdings's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Million Hope Industries Holdings

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Million Hope Industries Holdings paid out 66% of its earnings to investors last year, a normal payout level for most businesses. 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 paid out 99% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want look more closely here.

While Million Hope Industries Holdings'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 Million Hope Industries Holdings's ability to maintain its dividend.

Click here to see how much of its profit Million Hope Industries Holdings paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. From this perspective, we're disturbed to see earnings per share plunged 40% over the last 12 months, and we'd wonder if the company has had some kind of major event that has skewed the calculation.

Million Hope Industries Holdings 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. It's hard to grow dividends per share when a company keeps creating new shares.

Unfortunately Million Hope Industries Holdings has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

The Bottom Line

Is Million Hope Industries Holdings worth buying for its dividend? It's definitely not great to see earnings per share shrinking. The company paid out an acceptable percentage of its income, but an uncomfortably high percentage of its cash flow over the past year. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

With that in mind though, if the poor dividend characteristics of Million Hope Industries Holdings don't faze you, it's worth being mindful of the risks involved with this business. To help with this, we've discovered 4 warning signs for Million Hope Industries Holdings (1 doesn't sit too well with us!) that you ought to be aware of before buying the shares.

If you're in the market for dividend stocks, we recommend checking our list of top 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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