Do These 3 Checks Before Buying Associated International Hotels Limited (HKG:105) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Associated International Hotels Limited (HKG:105) 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 important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Associated International Hotels' shares before the 13th of December to receive the dividend, which will be paid on the 5th of January.

The company's next dividend payment will be HK$0.16 per share. Last year, in total, the company distributed HK$0.34 to shareholders. Based on the last year's worth of payments, Associated International Hotels stock has a trailing yield of around 5.3% on the current share price of HK$6.4. If you buy this business for its dividend, you should have an idea of whether Associated International Hotels's dividend is reliable and sustainable. So we need to investigate whether Associated International Hotels can afford its dividend, and if the dividend could grow.

View our latest analysis for Associated International Hotels

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Associated International Hotels paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. 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 Associated International Hotels 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 85% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

Click here to see how much of its profit Associated International Hotels 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. Associated International Hotels 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. Associated International Hotels's dividend payments per share have declined at 10% per year on average over the past 10 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.

Get our latest analysis on Associated International Hotels's balance sheet health here.

Final Takeaway

Is Associated International Hotels worth buying for its dividend? It's hard to get used to Associated International Hotels paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. Bottom line: Associated International Hotels has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

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 Associated International Hotels. In terms of investment risks, we've identified 2 warning signs with Associated International Hotels and understanding them 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.