We Wouldn't Be Too Quick To Buy Guotai Junan International Holdings Limited (HKG:1788) Before It Goes Ex-Dividend

It looks like Guotai Junan International Holdings Limited (HKG:1788) is about to go ex-dividend in the next four days. The ex-dividend date generally occurs two days 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. In other words, investors can purchase Guotai Junan International Holdings' shares before the 28th of May in order to be eligible for the dividend, which will be paid on the 17th of June.

The company's next dividend payment will be HK$0.02 per share, on the back of last year when the company paid a total of HK$0.04 to shareholders. Last year's total dividend payments show that Guotai Junan International Holdings has a trailing yield of 3.7% on the current share price of HK$1.08. 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 check whether the dividend payments are covered, and if earnings are growing.

We've discovered 2 warning signs about Guotai Junan International Holdings. View them for free.

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. Its dividend payout ratio is 88% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be concerned if earnings began to decline.

Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.

Check out our latest analysis for Guotai Junan International Holdings

Click here to see how much of its profit Guotai Junan International Holdings paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see Guotai Junan International Holdings's earnings per share have dropped 21% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Guotai Junan International Holdings has seen its dividend decline 5.4% per annum on average over the past 10 years, which is not great to see. 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.

Final Takeaway

Has Guotai Junan International Holdings got what it takes to maintain its dividend payments? Earnings per share have been declining and the company is paying out more than half its profits to shareholders; not an enticing combination. This is not an overtly appealing combination of characteristics, and we're just not that interested in this company's 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 Guotai Junan International Holdings. For instance, we've identified 2 warning signs for Guotai Junan International Holdings (1 is significant) you should be aware of.

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.