Should Income Investors Look At National Electronics Holdings Limited (HKG:213) Before Its Ex-Dividend?

Readers hoping to buy National Electronics Holdings Limited (HKG:213) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, National Electronics Holdings investors that purchase the stock on or after the 9th of December will not receive the dividend, which will be paid on the 29th of December.

The company's next dividend payment will be HK$0.005 per share, and in the last 12 months, the company paid a total of HK$0.035 per share. Calculating the last year's worth of payments shows that National Electronics Holdings has a trailing yield of 3.2% on the current share price of HK$1.09. 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.

View our latest analysis for National Electronics Holdings

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. National Electronics Holdings paid out a comfortable 33% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 5.5% of its cash flow last year.

It's positive to see that National Electronics Holdings's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit National Electronics Holdings paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're discomforted by National Electronics Holdings's 15% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. National Electronics Holdings has seen its dividend decline 1.5% per annum on average over the past 10 years, which is not great to see.

The Bottom Line

From a dividend perspective, should investors buy or avoid National Electronics Holdings? National Electronics Holdings has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. All things considered, we are not particularly enthused about National Electronics Holdings from a dividend perspective.

While it's tempting to invest in National Electronics Holdings for the dividends alone, you should always be mindful of the risks involved. For example, National Electronics Holdings has 4 warning signs (and 2 which are potentially serious) we think you should know about.

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. 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.