Why It Might Not Make Sense To Buy Oi Wah Pawnshop Credit Holdings Limited (HKG:1319) For Its Upcoming Dividend

Readers hoping to buy Oi Wah Pawnshop Credit Holdings Limited (HKG:1319) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. Meaning, you will need to purchase Oi Wah Pawnshop Credit Holdings' shares before the 11th of November to receive the dividend, which will be paid on the 28th of November.

The company's next dividend payment will be HK$0.01 per share, on the back of last year when the company paid a total of HK$0.014 to shareholders. Looking at the last 12 months of distributions, Oi Wah Pawnshop Credit Holdings has a trailing yield of approximately 5.4% on its current stock price of HK$0.27. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

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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. Oi Wah Pawnshop Credit Holdings is paying out an acceptable 55% of its profit, a common payout level among most companies.

Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.

Check out our latest analysis for Oi Wah Pawnshop Credit Holdings

Click here to see how much of its profit Oi Wah Pawnshop Credit Holdings paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're discomforted by Oi Wah Pawnshop Credit Holdings's 9.8% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. It looks like the Oi Wah Pawnshop Credit Holdings dividends are largely the same as they were 10 years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.

To Sum It Up

Has Oi Wah Pawnshop Credit Holdings got what it takes to maintain its dividend payments? We're not overly enthused to see Oi Wah Pawnshop Credit Holdings's earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.

So if you're still interested in Oi Wah Pawnshop Credit Holdings despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example, we've found 3 warning signs for Oi Wah Pawnshop Credit Holdings (1 is potentially serious!) that deserve your attention before investing in the shares.

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.