Why It Might Not Make Sense To Buy Tsaker New Energy Tech Co., Limited (HKG:1986) 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 Tsaker New Energy Tech Co., Limited (HKG:1986) is about to go ex-dividend in just four days. The ex-dividend date is commonly two business days 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Tsaker New Energy Tech investors that purchase the stock on or after the 19th of May will not receive the dividend, which will be paid on the 24th of June.

The company's next dividend payment will be CN¥0.025 per share. Last year, in total, the company distributed CN¥0.03 to shareholders. Based on the last year's worth of payments, Tsaker New Energy Tech has a trailing yield of 4.6% on the current stock price of HK$0.70. If you buy this business for its dividend, you should have an idea of whether Tsaker New Energy Tech's dividend is reliable and sustainable. As a result, readers should always check whether Tsaker New Energy Tech has been able to grow its dividends, or if the dividend might be cut.

We've discovered 3 warning signs about Tsaker New Energy Tech. View them 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. Tsaker New Energy Tech 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 Tsaker New Energy Tech didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. It paid out 105% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.

View our latest analysis for Tsaker New Energy Tech

Click here to see how much of its profit Tsaker New Energy Tech 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. Tsaker New Energy Tech 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.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Tsaker New Energy Tech's dividend payments are effectively flat on where they were nine years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.

We update our analysis on Tsaker New Energy Tech every 24 hours, so you can always get the latest insights on its financial health, here.

To Sum It Up

Has Tsaker New Energy Tech got what it takes to maintain its dividend payments? We're a bit uncomfortable with it paying a dividend while being loss-making, especially given that the dividend was not well covered by free cash flow. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

So if you're still interested in Tsaker New Energy Tech despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Be aware that Tsaker New Energy Tech is showing 3 warning signs in our investment analysis, and 1 of those is a bit concerning...

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.