Café de Coral Holdings Limited (HKG:341) Is About To Go Ex-Dividend, And It Pays A 7.1% Yield

Café de Coral Holdings Limited (HKG:341) is about to trade ex-dividend in the next 4 days. The ex-dividend date is commonly two business days 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 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, Café de Coral Holdings investors that purchase the stock on or after the 10th of December will not receive the dividend, which will be paid on the 23rd of December.

The company's next dividend payment will be HK$0.10 per share, and in the last 12 months, the company paid a total of HK$0.40 per share. Based on the last year's worth of payments, Café de Coral Holdings has a trailing yield of 7.1% on the current stock price of HK$5.63. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.

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Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Café de Coral Holdings distributed an unsustainably high 148% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. A useful secondary check can be to evaluate whether Café de Coral Holdings generated enough free cash flow to afford its dividend. Fortunately, it paid out only 27% of its free cash flow in the past year.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Café de Coral Holdings fortunately did generate enough cash to fund its dividend. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

View our latest analysis for Café de Coral Holdings

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Café de Coral Holdings's earnings per share have been growing at 13% a year for the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Café de Coral Holdings's dividend payments per share have declined at 6.5% per year on average over the past 10 years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

To Sum It Up

Is Café de Coral Holdings an attractive dividend stock, or better left on the shelf? Earnings per share have been rising nicely although, even though its cashflow payout ratio is low, we question why Café de Coral Holdings is paying out so much of its profit. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Café de Coral Holdings's dividend merits.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. In terms of investment risks, we've identified 3 warning signs with Café de Coral Holdings and understanding them should be part of your investment process.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.