Here's Why We're Wary Of Buying China Motor Bus Company's (HKG:26) For Its Upcoming Dividend

China Motor Bus Company, Limited (HKG:26) stock is about to trade ex-dividend in 3 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase China Motor Bus Company's shares before the 31st of May to receive the dividend, which will be paid on the 25th of June.

The company's next dividend payment will be HK$1.10 per share, and in the last 12 months, the company paid a total of HK$3.20 per share. Based on the last year's worth of payments, China Motor Bus Company has a trailing yield of 5.8% on the current stock price of HK$55.10. If you buy this business for its dividend, you should have an idea of whether China Motor Bus Company's dividend is reliable and sustainable. So we need to investigate whether China Motor Bus Company can afford its dividend, and if the dividend could grow.

View our latest analysis for China Motor Bus Company

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. China Motor Bus Company lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Over the last year it paid out 57% of its free cash flow as dividends, within the usual range for most companies.

Click here to see how much of its profit China Motor Bus Company 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. China Motor Bus Company 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.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. China Motor Bus Company has delivered 3.4% dividend growth per year on average over the past 10 years.

Get our latest analysis on China Motor Bus Company's balance sheet health here.

Final Takeaway

Is China Motor Bus Company an attractive dividend stock, or better left on the shelf? 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." It's not that we think China Motor Bus Company is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Although, if you're still interested in China Motor Bus Company and want to know more, you'll find it very useful to know what risks this stock faces. Every company has risks, and we've spotted 2 warning signs for China Motor Bus Company you should know about.

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.