Interested In Lam Soon (Hong Kong)'s (HKG:411) Upcoming HK$0.33 Dividend? You Have Four Days Left

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Lam Soon (Hong Kong) Limited (HKG:411) is about to trade ex-dividend in the next 4 days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. In other words, investors can purchase Lam Soon (Hong Kong)'s shares before the 17th of November in order to be eligible for the dividend, which will be paid on the 4th of December.

The company's upcoming dividend is HK$0.33 a share, following on from the last 12 months, when the company distributed a total of HK$0.48 per share to shareholders. Based on the last year's worth of payments, Lam Soon (Hong Kong) stock has a trailing yield of around 4.2% on the current share price of HK$11.50. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

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. Lam Soon (Hong Kong) paid out a comfortable 37% of its profit last year. A useful secondary check can be to evaluate whether Lam Soon (Hong Kong) generated enough free cash flow to afford its dividend. Dividends consumed 58% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's positive to see that Lam Soon (Hong Kong)'s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

See our latest analysis for Lam Soon (Hong Kong)

Click here to see how much of its profit Lam Soon (Hong Kong) paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about Lam Soon (Hong Kong)'s flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Lam Soon (Hong Kong) has delivered 8.6% dividend growth per year on average over the past 10 years.

To Sum It Up

Should investors buy Lam Soon (Hong Kong) for the upcoming dividend? Its earnings per share are effectively flat in recent times. The company paid out less than half its income and more than half its cash flow as dividends to shareholders. To summarise, Lam Soon (Hong Kong) looks okay on this analysis, although it doesn't appear a stand-out opportunity.

If you want to look further into Lam Soon (Hong Kong), it's worth knowing the risks this business faces. We've identified 2 warning signs with Lam Soon (Hong Kong) (at least 1 which shouldn't be ignored), and understanding them should be part of your investment process.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.