It Might Not Be A Great Idea To Buy Winfair Investment Company Limited (HKG:287) For Its Next Dividend

Readers hoping to buy Winfair Investment Company Limited (HKG:287) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase Winfair Investment's shares before the 13th of December in order to receive the dividend, which the company will pay on the 9th of January.

The company's next dividend payment will be HK$0.02 per share, on the back of last year when the company paid a total of HK$0.14 to shareholders. Based on the last year's worth of payments, Winfair Investment stock has a trailing yield of around 2.4% on the current share price of HK$5.8. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Winfair Investment

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. Winfair Investment reported a loss last year, so it's not great to see that it has continued paying a dividend. 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. It distributed 30% of its free cash flow as dividends, a comfortable payout level for most companies.

Click here to see how much of its profit Winfair Investment paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Winfair Investment 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. Winfair Investment has delivered an average of 1.6% per year annual increase in its dividend, based on the past 10 years of dividend payments.

We update our analysis on Winfair Investment every 24 hours, so you can always get the latest insights on its financial health, here.

Final Takeaway

Should investors buy Winfair Investment for the upcoming dividend? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

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 Winfair Investment. Our analysis shows 3 warning signs for Winfair Investment that we strongly recommend you have a look at before investing in the company.

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.