Here's Why We're Wary Of Buying China Everbright's (HKG:165) For Its Upcoming Dividend

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 China Everbright Limited (HKG:165) is about to go ex-dividend in just 4 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase China Everbright's shares before the 17th of September in order to receive the dividend, which the company will pay on the 10th of October.

The company's next dividend payment will be HK$0.05 per share, on the back of last year when the company paid a total of HK$0.10 to shareholders. Based on the last year's worth of payments, China Everbright stock has a trailing yield of around 3.1% on the current share price of HK$3.26. 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 investigate whether China Everbright can afford its dividend, and if the dividend could grow.

Check out our latest analysis for China Everbright

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. China Everbright 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.

Click here to see how much of its profit China Everbright paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. China Everbright was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. China Everbright's dividend payments per share have declined at 11% per year on average over the past 10 years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

Get our latest analysis on China Everbright's balance sheet health here.

The Bottom Line

Has China Everbright got what it takes to maintain its dividend payments? It's definitely not great to see that it paid a dividend despite reporting a loss last year. Worse, the general trend in its earnings looks negative in recent times. China Everbright doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

Although, if you're still interested in China Everbright and want to know more, you'll find it very useful to know what risks this stock faces. Our analysis shows 3 warning signs for China Everbright and you should be aware of them before buying any shares.

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