We Wouldn't Be Too Quick To Buy Bauhaus International (Holdings) Limited (HKG:483) Before It Goes Ex-Dividend

Readers hoping to buy Bauhaus International (Holdings) Limited (HKG:483) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You can purchase shares before the 4th of December in order to receive the dividend, which the company will pay on the 18th of December.

Bauhaus International (Holdings)'s next dividend payment will be HK$0.12 per share, which looks like a nice increase on last year, when the company distributed a total of HK$0.05 to shareholders. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Bauhaus International (Holdings) can afford its dividend, and if the dividend could grow.

View our latest analysis for Bauhaus International (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. Bauhaus 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. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Bauhaus 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. Luckily it paid out just 8.2% of its free cash flow last year.

Click here to see how much of its profit Bauhaus International (Holdings) paid out over the last 12 months.

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. Bauhaus 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.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Bauhaus International (Holdings) has seen its dividend decline 11% 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.

Get our latest analysis on Bauhaus International (Holdings)'s balance sheet health here.

To Sum It Up

Has Bauhaus International (Holdings) got what it takes to maintain its dividend payments? It's hard to get used to Bauhaus 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 Bauhaus International (Holdings).

So if you're still interested in Bauhaus International (Holdings) despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Every company has risks, and we've spotted 4 warning signs for Bauhaus International (Holdings) (of which 1 is a bit concerning!) you should know about.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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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