It Might Not Be A Great Idea To Buy Hysan Development Company Limited (HKG:14) For Its Next Dividend

Hysan Development Company Limited (HKG:14) is about to trade ex-dividend in the next four days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order 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. This means that investors who purchase Hysan Development's shares on or after the 27th of August will not receive the dividend, which will be paid on the 9th of September.

The company's next dividend payment will be HK$0.27 per share, on the back of last year when the company paid a total of HK$1.08 to shareholders. Calculating the last year's worth of payments shows that Hysan Development has a trailing yield of 7.2% on the current share price of HK$15.07. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

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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. Hysan Development 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. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If Hysan Development 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 more than half (65%) of its free cash flow in the past year, which is within an average range for most companies.

Check out our latest analysis for Hysan Development

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Hysan Development reported a loss last year, but at least the general trend suggests its income has been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Hysan Development's dividend payments per share have declined at 1.3% per year on average over the past 10 years, which is uninspiring.

Get our latest analysis on Hysan Development's balance sheet health here.

The Bottom Line

Is Hysan Development an attractive dividend stock, or better left on the shelf? It's hard to get used to Hysan Development paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

Although, if you're still interested in Hysan Development and want to know more, you'll find it very useful to know what risks this stock faces. For instance, we've identified 2 warning signs for Hysan Development (1 doesn't sit too well with us) you should be aware of.

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.