Here's Why We're Wary Of Buying Somerley Capital Holdings' (HKG:8439) For Its Upcoming Dividend

Somerley Capital Holdings Limited (HKG:8439) is about to trade ex-dividend in the next 4 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. 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. Meaning, you will need to purchase Somerley Capital Holdings' shares before the 19th of September to receive the dividend, which will be paid on the 29th of September.

The company's next dividend payment will be HK$0.025 per share. Last year, in total, the company distributed HK$0.025 to shareholders. Based on the last year's worth of payments, Somerley Capital Holdings has a trailing yield of 2.8% on the current stock price of HK$0.88. 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 Somerley Capital Holdings can afford its dividend, and if the dividend could grow.

View our latest analysis for Somerley Capital Holdings

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Somerley Capital Holdings reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term.

Click here to see how much of its profit Somerley Capital 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 earnings fall far enough, the company could be forced to cut its dividend. Somerley Capital Holdings 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.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Somerley Capital Holdings's dividend payments per share have declined at 6.5% per year on average over the past five years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

Remember, you can always get a snapshot of Somerley Capital Holdings's financial health, by checking our visualisation of its financial health, here.

The Bottom Line

Is Somerley Capital Holdings an attractive dividend stock, or better left on the shelf? It's hard to get past the idea of Somerley Capital Holdings paying a dividend despite reporting a loss over the past year - especially when the general trend in its earnings also looks to be negative. 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.

With that in mind though, if the poor dividend characteristics of Somerley Capital Holdings don't faze you, it's worth being mindful of the risks involved with this business. We've identified 2 warning signs with Somerley Capital Holdings (at least 1 which is a bit concerning), and understanding these should be part of your investment process.

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.