Dividend Investors: Don't Be Too Quick To Buy Xiabuxiabu Catering Management (China) Holdings Co., Ltd. (HKG:520) For Its Upcoming Dividend

Xiabuxiabu Catering Management (China) Holdings Co., Ltd. (HKG:520) stock is about to trade ex-dividend in three days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase Xiabuxiabu Catering Management (China) Holdings' shares before the 29th of May to receive the dividend, which will be paid on the 17th of June.

The company's next dividend payment will be CN¥0.028 per share, and in the last 12 months, the company paid a total of CN¥0.055 per share. Based on the last year's worth of payments, Xiabuxiabu Catering Management (China) Holdings has a trailing yield of 3.1% on the current stock price of HK$1.97. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Xiabuxiabu Catering Management (China) Holdings has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Xiabuxiabu Catering Management (China) 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. Xiabuxiabu Catering Management (China) 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. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Luckily it paid out just 8.6% of its free cash flow last year.

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

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. Xiabuxiabu Catering Management (China) Holdings reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Xiabuxiabu Catering Management (China) Holdings's dividend payments per share have declined at 5.6% per year on average over the past nine years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

Remember, you can always get a snapshot of Xiabuxiabu Catering Management (China) Holdings's financial health, by checking our visualisation of its financial health, here.

Final Takeaway

Is Xiabuxiabu Catering Management (China) Holdings an attractive dividend stock, or better left on the shelf? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

Ever wonder what the future holds for Xiabuxiabu Catering Management (China) Holdings? See what the 11 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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.