Should Income Investors Look At Helens International Holdings Company Limited (HKG:9869) Before Its Ex-Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Helens International Holdings Company Limited (HKG:9869) is about to trade ex-dividend in the next 3 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. This means that investors who purchase Helens International Holdings' shares on or after the 17th of May will not receive the dividend, which will be paid on the 24th of May.

The company's upcoming dividend is CN¥0.3153 a share, following on from the last 12 months, when the company distributed a total of CN¥0.32 per share to shareholders. Looking at the last 12 months of distributions, Helens International Holdings has a trailing yield of approximately 9.3% on its current stock price of HK$3.67. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Helens International Holdings

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. An unusually high payout ratio of 221% of its profit suggests something is happening other than the usual distribution of profits to shareholders. 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. Dividends consumed 64% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Helens International Holdings fortunately did generate enough cash to fund its dividend. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

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

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Helens International Holdings has grown its earnings rapidly, up 73% a year for the past five years.

Unfortunately Helens International Holdings has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

The Bottom Line

Should investors buy Helens International Holdings for the upcoming dividend? Growing earnings per share and a normal cashflow payout ratio is an ok combination, but we're concerned that the company is paying out such a high percentage of its income as dividends. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

If you're not too concerned about Helens International Holdings's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. For example, we've found 2 warning signs for Helens International Holdings (1 is concerning!) that deserve your attention before investing in the shares.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.