Don't Buy Quanzhou Huixin Micro-credit Co., Ltd. (HKG:1577) For Its Next Dividend Without Doing These Checks

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 Quanzhou Huixin Micro-credit Co., Ltd. (HKG:1577) is about to go ex-dividend in just 3 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Quanzhou Huixin Micro-credit's shares on or after the 13th of June, you won't be eligible to receive the dividend, when it is paid on the 15th of August.

The company's next dividend payment will be CN¥0.05 per share, and in the last 12 months, the company paid a total of CN¥0.05 per share. Based on the last year's worth of payments, Quanzhou Huixin Micro-credit has a trailing yield of 7.7% on the current stock price of HK$0.70. 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! We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Quanzhou Huixin Micro-credit

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. Quanzhou Huixin Micro-credit is paying out an acceptable 52% 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.

Click here to see how much of its profit Quanzhou Huixin Micro-credit 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 Quanzhou Huixin Micro-credit's 5.9% 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. Quanzhou Huixin Micro-credit's dividend payments are broadly unchanged compared to where they were seven 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

Is Quanzhou Huixin Micro-credit an attractive dividend stock, or better left on the shelf? We're not overly enthused to see Quanzhou Huixin Micro-credit'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.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Quanzhou Huixin Micro-credit. To help with this, we've discovered 4 warning signs for Quanzhou Huixin Micro-credit (1 is significant!) that you ought to be aware of before buying the shares.

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.