Fujikon Industrial Holdings Limited (HKG:927) Will Pay A HK$0.02 Dividend In Four Days

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Fujikon Industrial Holdings Limited (HKG:927) is about to trade ex-dividend in the next 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible 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. Therefore, if you purchase Fujikon Industrial Holdings' shares on or after the 11th of December, you won't be eligible to receive the dividend, when it is paid on the 29th of December.

The company's upcoming dividend is HK$0.02 a share, following on from the last 12 months, when the company distributed a total of HK$0.07 per share to shareholders. Looking at the last 12 months of distributions, Fujikon Industrial Holdings has a trailing yield of approximately 9.1% on its current stock price of HK$0.77. 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 check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Fujikon Industrial 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. Fujikon Industrial Holdings paid out 63% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Fujikon Industrial Holdings generated enough free cash flow to afford its dividend. It paid out more than half (51%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Fujikon Industrial 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 Fujikon Industrial Holdings paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Fujikon Industrial Holdings, with earnings per share up 8.8% on average over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Fujikon Industrial Holdings's dividend payments per share have declined at 9.5% per year on average over the past 10 years, which is uninspiring. Fujikon Industrial Holdings is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

To Sum It Up

Has Fujikon Industrial Holdings got what it takes to maintain its dividend payments? Earnings per share have been growing modestly and Fujikon Industrial Holdings paid out a bit over half of its earnings and free cash flow last year. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

If you're not too concerned about Fujikon Industrial Holdings's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. For example, Fujikon Industrial Holdings has 3 warning signs (and 1 which is a bit concerning) we think you should know about.

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.