Do These 3 Checks Before Buying Four Seas Mercantile Holdings Limited (HKG:374) For Its Upcoming Dividend

It looks like Four Seas Mercantile Holdings Limited (HKG:374) is about to go ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 14th of December will not receive this dividend, which will be paid on the 18th of January.

Four Seas Mercantile Holdings's next dividend payment will be HK$0.03 per share. Last year, in total, the company distributed HK$0.095 to shareholders. Calculating the last year's worth of payments shows that Four Seas Mercantile Holdings has a trailing yield of 3.5% on the current share price of HK$2.69. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Four Seas Mercantile Holdings

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. Four Seas Mercantile 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. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. It paid out 22% of its free cash flow as dividends last year, which is conservatively low.

Click here to see how much of its profit Four Seas Mercantile Holdings paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Four Seas Mercantile Holdings reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Four Seas Mercantile Holdings has lifted its dividend by approximately 3.1% a year on average.

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

The Bottom Line

Is Four Seas Mercantile Holdings an attractive dividend stock, or better left on the shelf? It's hard to get used to Four Seas Mercantile Holdings paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Four Seas Mercantile Holdings.

Although, if you're still interested in Four Seas Mercantile Holdings and want to know more, you'll find it very useful to know what risks this stock faces. We've identified 3 warning signs with Four Seas Mercantile Holdings (at least 2 which can't be ignored), and understanding them should be part of your investment process.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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