Keck Seng Investments (Hong Kong) Limited (HKG:184) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Keck Seng Investments (Hong Kong) Limited (HKG:184) is about to go ex-dividend in just three days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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 Keck Seng Investments (Hong Kong)'s shares before the 6th of June in order to receive the dividend, which the company will pay on the 27th of June.

The company's next dividend payment will be HK$0.08 per share, and in the last 12 months, the company paid a total of HK$0.16 per share. Last year's total dividend payments show that Keck Seng Investments (Hong Kong) has a trailing yield of 6.8% on the current share price of HK$2.36. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Keck Seng Investments (Hong Kong)

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Keck Seng Investments (Hong Kong) paid out just 17% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. Luckily it paid out just 9.1% of its free cash flow last year.

It's positive to see that Keck Seng Investments (Hong Kong)'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 Keck Seng Investments (Hong Kong) paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Keck Seng Investments (Hong Kong), with earnings per share up 2.2% on average over the last five years. Growth has been anaemic. Yet with more than 75% of its earnings being kept in the business, there is ample room to reinvest in growth or lift the payout ratio - either of which could increase the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Keck Seng Investments (Hong Kong) has seen its dividend decline 1.2% per annum on average over the past 10 years, which is not great to see.

Final Takeaway

From a dividend perspective, should investors buy or avoid Keck Seng Investments (Hong Kong)? Earnings per share growth has been growing somewhat, and Keck Seng Investments (Hong Kong) is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Keck Seng Investments (Hong Kong) is halfway there. Keck Seng Investments (Hong Kong) looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks Keck Seng Investments (Hong Kong) is facing. Our analysis shows 2 warning signs for Keck Seng Investments (Hong Kong) and you should be aware of these before buying any shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.