Don't Buy Luks Group (Vietnam Holdings) Company Limited (HKG:366) For Its Next Dividend Without Doing These Checks

Luks Group (Vietnam Holdings) Company Limited (HKG:366) stock is about to trade ex-dividend in four days. Typically, the ex-dividend date is one business day 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, Luks Group (Vietnam Holdings) investors that purchase the stock on or after the 4th of June will not receive the dividend, which will be paid on the 21st of June.

The company's upcoming dividend is HK$0.02 a share, following on from the last 12 months, when the company distributed a total of HK$0.04 per share to shareholders. Calculating the last year's worth of payments shows that Luks Group (Vietnam Holdings) has a trailing yield of 4.8% on the current share price of HK$0.83. If you buy this business for its dividend, you should have an idea of whether Luks Group (Vietnam Holdings)'s dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Luks Group (Vietnam 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. Luks Group (Vietnam Holdings)'s dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Luks Group (Vietnam Holdings) 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 20% of its free cash flow as dividends last year, which is conservatively low.

Click here to see how much of its profit Luks Group (Vietnam Holdings) paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Luks Group (Vietnam 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.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Luks Group (Vietnam Holdings)'s dividend payments per share have declined at 8.8% per year on average over the past 10 years, which is uninspiring. 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.

Remember, you can always get a snapshot of Luks Group (Vietnam Holdings)'s financial health, by checking our visualisation of its financial health, here.

To Sum It Up

From a dividend perspective, should investors buy or avoid Luks Group (Vietnam Holdings)? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Luks Group (Vietnam Holdings).

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 Luks Group (Vietnam Holdings). To that end, you should learn about the 3 warning signs we've spotted with Luks Group (Vietnam Holdings) (including 1 which is concerning).

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.